The value of the Arkansas Public Employees Retirement System’s investments remained virtually flat in a volatile quarter that ended Sept. 30, as they dropped by $22 million to $9.13 billion, the system’s board of trustees learned Wednesday.
The system’s investment return was 0.45% in the past quarter, a performance ranking in the bottom 20 percent of the nation’s public pension systems during that three-month period, investment consultant Callan Inc. reported to the system’s trustees. The investments that the system tapped to help pay retirement benefits outdistanced its investment returns last quarter.
But the value of the investments rebounded to $9.17 billion as of Oct. 31, Chief Investment Officer Carlos Borromeo said during a break in the trustees’ four-hour meeting.
With an eye toward increasing its returns in foreign stock markets, the trustees on Wednesday approved a plan to reduce its $815 million investment in foreign stocks in an index fund to about $330 million, increase its foreign stock investments with three other managers by a total of about $155 million, and hire a new manager to invest about $330 million in foreign stocks. The system’s investment in foreign stocks totals about $2.2 billion, according to Callan Inc.
The Public Employees Retirement System is state government’s second-largest such agency, with more than 75,000 working and retired members.
The board confirmed its initial decision in August to keep the contribution rate charged to state and local governments unchanged for fiscal 2022, which starts July 1, 2021.
The trustees had voted to keep the 15.32% payroll assessment steady for fiscal 2020, which started July 1 this year, and fiscal 2021. State and local governments paid $293.5 million into the system in fiscal 2019, while member employees paid $68.2 million, according to a system report. Most members pay 5% of their salary.
The rate is affected by several factors, including the system’s rate of return on investments. The return for fiscal 2019 was 5.78%, below the system’s target rate of return of 7.15%. The investment return was 10.25% in fiscal 2018, 12.30% in fiscal 2017 and 0.30% in fiscal 2016, according to Callan Inc.
As of June 30 this year, the system was 78.5% funded, with an actuarial value of assets at $8.7 billion and total liabilities of $11.1 billion, system actuary Gabriel, Roeder, Smith & Co. reported to the board. On June 30, 2018, the system was 78.7% funded, with an actuarial value of assets of $8.4 billion and total liabilities of $10.6 billion, according to the actuary.
The system’s projected payoff period for its unfunded liabilities declined to 24 years on June 30 from 26 years on June 30, 2018, Gabriel reported. Actuaries often compare unfunded liabilities to a mortgage on a home.
As of June 30, the system had 45,965 working members with an average salary of $39,212 a year, and 38,543 retirees and beneficiaries with annual retirement benefits of $609.1 million (or an average of $15,803 a year), according to Gabriel.
A goal of the trustees is to reduce the system’s unfunded liabilities, but most of the bills they proposed for this year’s legislative session failed to clear the Legislature’s Joint Committee on Public Retirement and Social Security Programs.
The committee held 11 meetings in September and October across the state to get feedback and to educate members of state retirement systems about the condition of those systems. The committee’s leaders have said they want to develop a legislative package for the 2021 regular session.
System Executive Director Duncan Baird told the trustees that increasing the 5% contribution by employees “was a frequent topic of discussion” at the meetings.
“At least the people that were vocal saw that as a tool that it seemed in my view that they would want us to look at, if it would strengthen the system,” he said.
Trustee Gary Carnahan of Hot Springs said he thinks lawmakers “are not going to ask us to bring them any draft legislation.
“I think they are going to make up their minds what they want to do. That’s my gut feel,” he said.
But trustee David Hudson, who is the Sebastian County county judge, said, “If we can influence the Legislature, let’s do so.”
Baird said, “At the end of the day, we are best positioned to give people, with the actuary, to tell them what are good ideas, what are not so good ideas, what are things that are best for the members, the plan for long term.”
Baird is a former Republican state representative from Lowell and a former state budget administrator.