The Arkansas Public Employees Retirement System's investments increased in value by $20 million to $7.82 billion in the fiscal year that ended June 30, an investment consultant told the system's board of trustees Wednesday.
The trustees then decided to keep the rate charged to state and local governments at 14.5 percent of employee payroll for the fiscal year that starts July 1, 2016.
The system's investment return was 2.45 percent in fiscal 2015. The system's overall domestic stock and bond investments increased in value while its overall international stock and investments declined, consultant Callan Associates of Chicago reported.
The median investment return for the nation's public retirement systems was 3.21 percent in fiscal 2015, Callan Associates said.
The system's investment return has averaged 12.25 percent a year during the past five years to rank among the top 10 percent of public pension systems, and 7.17 percent a year during the past 10 years to rank among the top 17 percent of those systems, said Ryan Ball, senior vice president of Callan Associates.
With more than 75,000 working and retired members, the retirement system is state government's second-largest, behind the Arkansas Teacher Retirement System.
The teacher retirement system has more than 100,000 working and retired members. It hasn't reported its investment performance for fiscal 2015 yet.
State and local governments paid $262.7 million into the public employees system and their employees contributed $51.5 million in fiscal 2015, while the system paid out $451.9 million in retirement benefits, according to a system report.
The system included 45,722 working members with an average age of 44.8 years, average service of 9.2 years and an average salary of $35,979 in fiscal 2015, reported system actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich.
The system also included 31,411 retired members with average retirement benefits of $13,778 in fiscal 2015, the actuary said.
Although the actuary recommended cutting the rate charged to state and local governments from 14.5 percent to 14.45 percent of employee payroll in fiscal 2017, the trustees voted Wednesday to keep that rate at 14.5 percent.
During the past two years, the trustees have cut the rates after increasing them for each of the previous four years to help compensate for sharp investment losses during the recession.
Trustees David Hudson, county judge of Sebastian County, and David Morris, Searcy's mayor, said Wednesday that they would rather keep the rate unchanged in fiscal 2017 rather than trim it and then have to increase the rate in fiscal 2018.
In other action, the trustees decided to reduce the system's annual projected investment return from 7.75 percent to 7.5 percent and the system's projected annual wage inflation rate from 3.5 percent to 3.25 percent in response to a recommendation from Gabriel, Roeder, Smith & Co.
Gail Stone, executive director of the retirement system, said the reduced projections are a result of the actuary taking a "look forward rather than backward" under actuaries' new standards of practice.
The system's unfunded liabilities totaled $1.943 billion on June 30 with a projected payoff period of 25 years, Gabriel, Roeder, Smith & Co. said. Actuaries often compare unfunded liabilities to a mortgage on a house. Unfunded liabilities are the amount by which the system's liabilities exceed an actuarial value of the system's assets.
The trustees also authorized the investment of $50 million into a real estate investment fund managed by LaSalle Investment Management of Chicago, and delayed action until its Nov. 18 meeting on investing $50 million in a real estate investment fund managed by TA Realty, which has offices in Boston; Newport Beach, Calif.; and Palm Beach Gardens, Fla.
They agreed to meet during their Nov. 18 meeting with Ellis Sloan of Searcy, portfolio manager for Kernodle and Katon Tax & Asset Management Group, who formerly worked for Horrell Capital Management.
Sloan said in a letter to the trustees that he exclusively managed the system's Arkansas stock index portfolio for 8½ years. He joined Kernodle and Katon Tax & Asset Management Group on May 15, so he wants the system to conduct an investment manager search so he "might have the opportunity to continue to manage the Arkansas Stock Index portfolio for you."
Horrell Capital Management of Little Rock operates the Arkansas stock index fund that was valued at $95 million on June 30, Callan Associates said. After the trustees' meeting, Scott Horrell, owner of Horrell Capital Management, declined to comment on the trustees' decision to meet with Sloan.
The trustees on Wednesday re-elected former state Department of Workforce Services Director Artee Williams, who is retired, as their chairman for the next two years.
Metro on 08/20/2015