The Arkansas State Highway Employees Retirement System's investments dropped in value by $84.6 million in the recently ended fiscal year to $1.38 billion, according to the system's executive secretary, Robyn Smith.
The system earned an investment return of 1.15% in fiscal 2019, which ended June 30, as the system paid out nearly $130 million in retirement benefits and expenses, she said.
The highway employees system's investment return lagged behind the 6.19% median investment return for similar-sized public pension plans, based on information from the Callan investment consulting firm, because the system's stock market and energy investments caused the system to lag relative to its peers, Smith said.
Meanwhile, the Arkansas Judicial Retirement System's investments increased in value by $6.3 million in fiscal 2019 to $267.6 million, Callan reported.
The system's investment return of 6.14% in the past fiscal year ranked in the top 53% of similar-sized public pension systems that had a median return of 6.19%, Callan said in a report to the system's board of trustees.
"I'm pleased with the positive investment return for last fiscal year, which exceeded the system's assumed rate of return [of 5.75% a year]," said Duncan Baird, director of the Arkansas Public Employees Retirement System. Baird also works for the Judicial Retirement System and Arkansas State Police Retirement System.
The state highway employees and judicial retirement systems are among the smallest of state government's such agencies.
By comparison, the Arkansas Teacher Retirement System has an investment portfolio that has exceeded $17 billion and the Public Employees Retirement System has a portfolio that has been more than $8 billion. The investment performance for these systems will be released within the next several weeks.
The highway employees retirement system's stock market investments declined in value from $1.07 billion to $999.3 million in fiscal 2019, while its bond investments increased in value from $243.9 million to $256.5 million and the system's cash declined from $148.6 million to $132.1 million, according to Smith.
The highway retirement system's investment return has averaged 9.52% a year over the past 10 years compared with the median return for similar-sized public pension plans of 9.2% a year, according to Callan. The system projects an annual investment return of 8%, Smith said.
The state Department of Transportation paid $19.2 million into the system last fiscal year, while its working members paid $9.2 million, she said.
The system includes 2,523 retired members with an average annual benefit of $33,550 a year; 427 disabled retirees with an average annual benefit of $16,785; and 486 beneficiaries with an average annual benefit of $15,390 a year as of June 30, 2018, Smith said.
The fiscal 2018 actuarial report is the most recent.
As of June 30, 2018, the system's unfunded liabilities totaled $281.1 million with an infinite projected payoff period, she said. Unfunded liabilities are the amount by which the system's liabilities exceed an actuarial value of the system's investments. Actuaries often compare unfunded liabilities to a mortgage on a home.
Starting July 1 of this year, the system's working employees are now paying 6.5% of their salary into the system, up from 6%, under Act 295 of 2019 that allows the system's trustees to increase how much working members and the Department of Transportation pay into the system, Smith said.
Under that same law, the department is paying 14.9% of an employee's salary into the system, up from the previous 12.9%, she said.
The workers' contribution will increase to 7% of their salary in July 2020, Smith said.
Act 294 of 2019 removed retirees' health insurance supplement, which ranges from $75 to $125 per month, depending on the length of service, from the system's cost-of-living adjustment for retirees.
Lawmakers approved Act 610 in 2017 that changed the annual fixed 3% cost-of-living adjustment for retirees to the lesser of 3% or the change in the consumer price index for urban wage and clerical workers. That move also was aimed at reducing unfunded liabilities.
Act 295 is projected to reduce the system's unfunded liabilities by $23 million over five years and $68 million over 10 years and reduce the projected payoff period to a little over 30 years, Smith said. Act 294 is projected to reduce the system's unfunded liabilities by $5.5 million in one year, she said.
JUDICIAL RETIREMENT
The Judicial Retirement System's domestic stock market investments increased in value in fiscal 2019 from $103.2 million to $104 million, while its international stock market investments increased in value from $38.5 million to $40.7 million and bond investments increased in value from $95.3 million to $98.4 million, Callan reported.
The system's real estate investments increased in value from $23.9 million to $24.2 million in the past fiscal year and its cash and equivalents increased from $112,445 to $164,654, according to Callan.
The system's investment return has averaged 6.41% over the past five years to rank in the top 22% of similar-sized public pension systems, and 8.37% a year over the past 28 years to rank in the top 42% of these pension systems, according to Callan.
Employers paid $7.7 million into the system in fiscal 2019, while working members paid $988,612, according to Baird.
The system includes 140 working members with an average salary of $162,166 a year and 149 retired members with an average pension of $87,118 a year, he said.
The system's unfunded liabilities totaled $30 million on June 30, 2018, with a projected payoff period of 20 years. The fiscal 2018 actuarial report is the most recent.
SundayMonday on 08/12/2019