State workers' pension system gains in value

Investment return at 10.25%

The Arkansas Public Employees Retirement System earned a return of 10.25 percent in the last fiscal year, as its investments rose in value by $603 million with the help of rising stock markets, a consultant told the system's board of trustees Wednesday.

The fiscal 2018 investment return ranked among the top 10 percent of the nation's public pension systems, said Brianne Weymouth of the investment consulting firm Callan Associates. The system's assets totaled $8.9 billion. Fiscal 2018 ended June 30 and fiscal 2019 started the next day.

The trustees decided to keep the current rate charged to state and local governments at 15.32 percent of payroll in fiscal 2020, which starts July 1, 2019, and in fiscal 2021, rather than reduce the rate one year and change it the next.

Last year, the trustees decided to increase the rate, effective July 1 of this year, from 14.75 percent to 15.32 percent, in a move projected to cost state and local governments roughly $10 million more in fiscal 2019. The action came after the trustees reduced the projected annual investment return from 7.5 percent to 7.15 percent.

State and local governments paid $276.7 million into the system and members -- the employees -- contributed $64.7 million in fiscal 2018, according to a system report to the board.

The system is state government's second-largest retirement system with more than 80,000 working and retired members. By comparison, the Arkansas Teacher Retirement System has roughly $17 billion in investments and more than 100,000 working and retired members. The teacher retirement system hasn't reported its investment performance for fiscal 2018 yet.

The Public Employees Retirement System's domestic stock market investments earned a return of 16.27 percent in fiscal 2018 to reach $3.56 billion. International stock market investments posted a return of 7.22 percent to end up valued at $2.18 billion, according to Callan Associates.

The system's "real" assets, including energy, real estate and timber investments, reaped a return of 11.34 percent last fiscal year to reach $1.36 billion, and the system's bond holdings earned a return of 0.79 percent to end the fiscal year valued at $1.34 billion, Callan Associates reported.

Diversified strategies investments earned a return of 6.43 percent last fiscal year to reach $413.6 million, the investment consultant reported.

Callan Associates said the system's investment return averaged 8.82 percent over the past five years to rank among the top 19 percent of public pension systems, and 6.99 percent over the past 10 years to rank among the top 28 percent.

But several trustees said they prefer stability in the rate, rather than cut it for the next fiscal year, only to increase the next year.

Trustee Larry Walther said the trustees "need to level out" the rates because "we are going to have good years and we are going to have bad years." He said he also wants the trustees to set the rate more than a year and a half in advance of when the rate goes into effect for planning purposes. Cities and counties base their budgets on calendar years. The state budget is based on fiscal years starting July 1.

The trustees decided to keep the current rate for fiscal 2020 and 2021 and then determine rates beyond that more than a year and a half in advance.

The system included 46,207 working members with an average age of 44.3, average service of 8.7 years and an average salary of $37,603 in fiscal 2018, according to Gabriel, Roeder, Smith & Co. The system also includes 35,838 retired members who were paid $526.1 million in retirement benefits in fiscal 2018, an average of $14,680, the actuary said in a report to the system's trustees.

The system's unfunded liabilities totaled $2.31 billion as of June 30, and the projected payoff is less than 27 years, said David Hoffman of Gabriel, Roeder, Smith & Co. Unfunded liabilities are the amount by which a system's assets are outstripped by its future obligations. Actuaries often compare them to a mortgage.

In other action, the trustees voted to fire investment manager Westwood, which managed $178.5 million in domestic stock investments for the system as of June 30, based on the recommendation of Callan Associates Senior Vice President Ryan Ball. Sixty percent of those funds will be shifted to Wellington Management, which handled $308 million for the system as of June 30, and the other 40 percent to LSV Asset Management, which managed $208.5 million for the system as of June 30.

Metro on 08/16/2018

Upcoming Events