Highway retiree fund's investments dip $138M

The Arkansas State Highway Employees Retirement System's investments dipped in value by $138 million last fiscal year to $1.305 billion, according to a report released Friday.

The system's investment return in fiscal 2016 was minus 3.74 percent as the system's stock market investments dropped in value and its bond and cash investments increased, said Robyn Smith, executive secretary for the system. The system also paid out more in benefits than it received in contributions.

"It performed in line with expectations, given the market's performance," she said of the return.

The median investment gain for public retirement systems nationally was 0.5 percent last fiscal year, Smith said Friday, citing figures from Chicago-based investment consultant Callan Associates.

The Highway Employees Retirement System is the latest state government retirement system to report its investment performance in fiscal 2016, which ended June 30 and saw stock markets seesaw.

Last week, the Arkansas Judicial Retirement System's investment consultant reported that the system's investments dropped in value by $7.1 million, to $215.9 million, in fiscal 2016, as the system recorded an investment return of minus 0.27 percent.

State government's two largest retirement systems -- the Arkansas Teacher Retirement System and Arkansas Public Employees Retirement System -- are expected to soon release reports on their fiscal 2016 investment performance.

During fiscal 2016, the Highway Employees Retirement System's stock market investments decreased in value by $226.6 million, to $613 million, in posting an investment return of minus 4.95 percent, while its other equity investments in energy, master limited partnership and "diversification assets" dipped in value by $30.8 million, to $246.6 million, in recording an investment return of minus 4.62 percent, Smith said.

The system's bond investments increased in value by $50.5 million, to $247.7 million, as the system posted an investment return of 1.03 percent, she said. The system's cash investments increased in value by $72.9 million to $196.2 million last fiscal year, she said.

The system paid out $106.7 million in retirement benefits and annuities last fiscal year, Smith said. Employees paid $9.3 million into the system in fiscal 2016, while the state contributed $19.2 million, Smith said.

The system includes 3,338 working members with an average annual salary of $42,104, and 2,340 retired members with an average annual retirement benefit of $31,981, she said.

It also includes 391 disabled retirees with an average annual benefit of $16,425 and 513 beneficiaries with an average annual benefit of $14,314, she said.

The personnel figures are from system actuary Gabriel, Roeder, Smith & Co.'s report as of June 30, 2015, Smith said.

"We do not have the data for [fiscal year] 2016 at this time," Smith said.

The system's unfunded liabilities totaled $198.7 million as of June 30, 2015, with a projected payoff period of 48.4 years -- an increase from the $135.5 million in unfunded liabilities as of June 30, 2014, with a projected payoff period of 23.2 years -- she said.

Unfunded liabilities are the amount by which a retirement system's liabilities exceed an actuarial value of the system's assets. Actuaries often compare them to a mortgage on a house.

Smith said the main reason for the increased number of years to pay off the system's unfunded liabilities was the system changed the mortality rate table used for calculations from a "static" to a "generational" table.

"The actuarial industry is transitioning to a generational mortality table," she explained. "According to this table, an individual born in 1960 will live slightly longer than someone born in 1959, and someone born in 1961 will live slightly longer than someone born in 1960. According to the actuary, this is a more accurate approach to determining life expectancy, as opposed to the static rate that men will live on average 82 years and women 85 years."

Metro on 08/13/2016

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