Teacher retirement investments gain 3.2% in quarter

The Arkansas Teacher Retirement System's investments gained $293 million in value to total nearly $14.4 billion last quarter, before what an investment consultant called "a very tough month" for stock markets in January.

The system's investment return was 3.2 percent in the quarter that ended Dec. 31, Chicago-based Aon Hewitt Investment Consulting said in a report to the system's board of trustees.

The trustees subsequently voted to:

• Authorize up to $80 million in new investments in private equity and infrastructure funds.

• Continue charging the system's employers -- most of them school districts -- the same rate when the new fiscal year starts July 1.

• Reduce from three to two this year the number of out-of-state educational conferences that trustees may attend and be reimbursed by the system.

The system is state government's largest retirement system with more than 100,000 working and retired members.

The system's investment return was 1.7 percent during the last calendar year. It averaged 7.8 percent a year during the past five years and 6.6 percent a year during the past 10 years, according to Aon Hewitt Investment Consulting.

The system started the fiscal year on July 1 with its investments valued at $14.975 billion. Total investments dropped in value to $14.105 billion by the end of the quarter on Sept. 30, largely as a result of a downturn in the stock markets, Aon Hewitt's report said.

Aided by rising stock markets, the investments increased in value from $14.105 billion to $14.398 billion by the end of the quarter on Dec. 31, the firm reported.

During the last quarter, the system's investment earnings totaled $469 million, but retirement benefit payments of $176 million cut the increased value in the system's investments to $293 million, the consulting firm reported.

Then, "January was a very tough month" for stock markets, said Katie Comstock of Aon Hewitt. The Dow Jones industrial average and the Nasdaq ended the month down.

System Executive Director George Hopkins said Monday that he hadn't yet computed an updated value of the system's investments.

On Monday, the trustees voted to authorize an up-to-$50 million investment in Global Infrastructure Partners' Fund III LLC, an infrastructure fund specializing in the energy, transport, and water/waste sectors. Global Infrastructure Partners is based in New York.

They also voted to authorize investing up to $30 million in the Vista Foundation's Fund III LP, a private equity fund that invests in enterprise software companies.

The Vista Foundation has offices in Austin, Texas; Chicago and San Francisco.

In other action, the trustees decided to continue charging the system's employers, which are largely school districts, the equivalent of 14 percent of their payroll in the fiscal year starting July 1.

The system's employers paid $408 million into the system last fiscal year, while system's members paid $128 million, according to Hopkins.

Act 1446 of 2013 gives the board the authority to increase the rate charged to employers in increments of 0.25 percent per year up to a maximum of 15 percent, if any rate increases are needed.

At the suggestion of board Chairman Jeff Stubblefield of Charleston, the trustees voted to reduce from three to two the number of out-of-state educational conferences that trustees may be reimbursed for this year.

"We are in a down [stock] market and we need to be conservative at this time," Stubblefield said afterward.

He said cutting the number won't affect many of the system's trustees.

The system includes 68,945 working members, who are not part of the deferred retirement plan, with an average annual salary of $36,717, and 3,974 other working members, who are part of the deferred retirement plan, with an average annual salary of $61,874 as of June 30, according to system actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich.

The system also includes 40,748 retired members with an average annual pension of $22,495 as of June 30, the actuarial firm reported.

The system's unfunded liabilities totaled $3.7 billion on June 30 with a projected payoff period of 33 years, according to Gabriel, Roeder, Smith & Co.

Unfunded liabilities are the amount by which financial liabilities -- the projected amount needed to pay benefits to all of its retirees -- exceed an actuarial value of the system's assets.

Actuaries often compare the payoff period to a mortgage on a house. State law requires the state government's retirement systems to aim for projected payoff periods of 30 years or less.

Metro on 02/02/2016

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