The Arkansas Public Employees Retirement System's investments dropped in value last quarter by $94 million to $11.5 billion, an investment consultant reported Wednesday.
The system's investment return was minus 0.17%, the consultant, Callan, said in a written report to the system's board of trustees.
The system's relatively flat investment performance in the quarter that ended Sept. 30 came on the heels of a 31.49% return in fiscal 2021, which ended June 30. Buoyed by robust markets, the system's investments increased in value from $9.09 billion on June 30, 2020, to $11.6 billion a year later.
The system had a strong investment performance in the year that ended Sept. 30 with a return of 23.82% to rank in the top 15% of similarly sized public pension systems, said Brianne Weymouth of Callan.
Its return over the past 10 years has averaged 11.03% a year to rank among the top 12% of similarly sized systems, according to Callan. Its target return is 7.15% a year.
Since the end of the last quarter on Sept. 30, the system's investments have increased in value to $11.9 billion as of Oct. 31, said system Executive Director Duncan Baird. Investment returns in the stock market rebounded in October and so far in November, said John Jackson of Callan.
On Wednesday, the trustees voted to confirm their tentative decision in August to keep the system's current 15.32% of payroll rate charged to state and local governments in fiscal 2024, which starts July 1, 2023.
In fiscal 2021, state and local governments paid $306.5 million into the system and system members contributed $75 million, according to Baird. Members who contribute pay 5% of their salary into the system.
The trustees signaled in August that they wanted to stick with the existing employer rate rather than reduce it for fiscal 2024 because they want to reduce the system's unfunded liabilities and the projected period for paying them off.
Unfunded liabilities are the amount by which a system's liabilities outstrip an actuarial value of its assets. Actuaries often compare the projected payoff period for unfunded liabilities to a mortgage on a house.
The system's actuary phases in the recognition of investment gains and losses over four years in an attempt to stabilize the rate charged employers, which are state and local governments.
As of June 30, the system's actuarial accrued liabilities totaled $11.8 million and an actuarial value of its assets totaled $9.8 billion, leaving unfunded liabilities at $1.9 billion with a projected payoff period of 16 years, the actuary, Gabriel, Roeder, Smith & Co. reported Wednesday.
The system's funded ratio is 84%, according to the actuary.
By comparison, its unfunded liabilities totaled $2.4 billion with a projected payoff period of 23 years, Gabriel reported.
"We are sitting pretty good," said trustee Daryl Bassett, who also is secretary of the state Department of Labor and Licensing.
As of June 30, the system included 42,669 working members with an average salary of $41,759 a year, and 40,762 retired members, including deferred retirement plan participants, with total benefits of $658.8 million or an average of $16,162 a year, Gabriel. reported.
According to Gabriel, the system's June 30 actuarial valuation also reflects the following measures:
• Act 365 of 2021 that will gradually increase the amount that members of the system contribute. The law will increase the percentage of salary that a member pays from the current 5% by 0.25% a year, starting July 1, 2022, over an eight-year period until that percentage reaches 7%.
• Act 366 of 2021 that will change the cost-of-living adjustment for retirement benefits for system members hired on or after July 1, 2022, from 3% a year to the lower of 3% or the consumer price index each year.
• Act 370 of 2021 that will change how the system computes the final average compensation that is used in calculating retirement benefits for a member hired by a system-covered employer, starting on or after July 1, 2022. The final average compensation will be based on the average of the five highest years of annual compensation rather than the average of the three highest years of annual compensation.
• Act 518 of 2021 that extended the maximum period for members in the deferred retirement plan from seven years to 10 years, effective March 31, 2021.
The system's domestic stock market investments earned a return of 0.26% last quarter to end up valued at $4.5 billion, while the system's international stock market investments posted a minus 3.23% return to reach $2.9 billion on Sept. 30, according to Callan.
Its bond investments recorded a return of 0.13% last quarter to reach $2.1 billion, while diversified strategies investments posted a return of minus 0.08% to end up valued at $518 million on Sept. 30, Callan reported.
Real asset investments earned a return of 4.83% last quarter to reach $1.3 billion, according to Callan. Those investments included $862 million in core real estate, $244 million in value added real estate, $164 million in real estate investment trusts and $78 million in timber investments.
The trustees voted Wednesday to hire two investment managers to manage $50 million apiece in farmland investment funds. They are International Farming Corp. of Kinston, N.C., to manage $50 million in the IFC Core Fund and PGIM Agriculture Investments of Madison, N.J., to manage $50 million invested in the PGIM U.S. Agriculture Fund, Baird said.
House Speaker Matthew Shepherd, R-El Dorado, appointed Kaye Donham to a six-year term on the system's board of trustees in a letter dated Sept. 8, according to records released Wednesday. She serves in a position of a system member who has retired from employment covered by the system.
House spokeswoman Cecillea Pond-Mayo said Donham is a retired assistant coordinator, assistant to the speaker in the House of Representatives.
Wednesday's meeting was the second for Donham, who also attended the trustees' educational meeting in October, Baird said.
Donham is one of four trustees who have joined the board during the past few months under a state law enacted earlier this year.
The others are retired Bureau of Legislative Research assistant director of research Richard Wilson, retired Arkansas Game and Fish Commission law enforcement Cpl. Gary Wallace and retired Alma Police Chief Russell White, who is the police chief and airport security coordinator at the Northwest Arkansas National Airport.
Senate President Pro Tempore Jimmy Hickey, R-Texarkana, appointed Wilson and Wallace. Shepherd appointed White.
Act 686 of 2021 expanded the board of trustees from nine to 13 members with the House speaker and Senate president pro tempore each appointing two retired system members. One of the two appointees for each legislative leader is required to be a retired law enforcement officer who is not in the Arkansas State Police Retirement System.