Retirement fund adds $1 billion
Posted on Tuesday, October 3, 2006
The value of the Arkansas Teacher Retirement System’s investments increased $ 1. 03 billion in the fiscal year that ended June 30, an investment consultant told the system’s trustees Monday.
But it remains to be seen whether that gain will translate into a reduction in the rate the system charges school districts or an increase in the amount of benefits the system pays its members.
In the boost in the value of the system’s assets, about $ 944 million was investment gains, “a very strong year in terms of making money,” said P. J. Kelly of the Chicago-based consulting firm Ennis, Knupp & Associates.
The investment return of 12. 4 percent last fiscal year is better than the performance of 77 percent of the public pension systems across the nation, he said.
The system received strong returns on in the domestic stock market, private equity and real estate, said Steve Cummings of the Ennis firm.
The value of system’s investments has reached $ 9. 81 billion.
Kelly said the annual return of 13. 6 percent the past three fiscal years is stronger than that of 79 percent of the nation’s public pension systems. “A great three years” is how system Executive Director David Malone said system officials view it.
But, he cautioned the trustees, “That doesn’t make up for some bad years.”
The system spreads investment gains and losses over a four-year period and hasn’t recognized all of its investments losses from fiscal 2000-2002.
According to the Ennis report, the value of the system’s U. S. stock market investments increased from $ 3. 79 billion on June 30, 2005, to $ 4. 24 billion on June 30, 2006, and the value of foreign stock market investments increased from $ 1. 61 billion to $ 1. 94 billion in the same period.
The value of the bond investments increased from $ 2. 043 billion to $ 2. 237 billion. The private equity investments increased from $ 514 million to $ 530 million and real estate investments from $ 229 million to $ 358 million. The timberland investments declined from $ 245 million to $ 239 million, the firm said.
Malone said, “We will have to wait until we see what the actuary suggests” about changing the rate the system charges school districts.
“But we are in a much stronger position today than we were a year ago,” he said in an interview.
He said he expects the actuarial report for June 30 of this year from Gabriel, Roeder, Smith & Co. of Southfield, Mich., in December.
In February, the trustees voted to increase the percentage of payroll charged to school districts in the current school year to 15 percent, but reversed that decision in April after the Legislature stripped them of authority to increase the rate. System officials said the increase would have cost districts about $ 20 million a year.
The trustees increased the rate from 12 percent to 13 percent in July 2003 and to 14 percent in July 2004. The charge costs districts about $ 280 million a year at the 14 percent rate.
The actuary’s report also will have a bearing on whether the system would increase retirement benefits. The system’s retirees had an average retirement benefit of $ 18, 300 a year as of June 30, 2005.
Under state law, the system would be precluded from increasing benefits if the actuary finds that would take the system more than 30 years to pay off the system’s unfunded liabilities.
Malone said he expects the unfunded liabilities as of June 30, 2006, to increase slightly. The unfunded liability was $ 2. 156 billion as of June 30, 2005, which would take 38 years to pay off, according to Gabriel, Roeder, Smith & Co.
In February, Brian Murphy of the Gabriel firm told the trustees that it would take three to five years of investment returns at an annual rate of 10 percent or more to reduce the period for paying unfunded liabilities to 30 years in the absence of a rate increase to 15 percent.
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