N.C. Pension Fund Posts Gains, Though Earnings have Slowed, Treasurer Says | Eastern North Carolina Now

    Publisher's note: The author of this post is Dan Way, who is an associate editor for the Carolina Journal, John Hood Publisher.

    The state pension fund posted overall gains of 7.3 percent for the 2017-18 fiscal year just ended June 30, outpacing the assumed rate of return on investments. But earnings have slowed to date for the 2018 calendar year, State Treasurer Dale Folwell reported.

    "For the first six months of 2018, the plan has paid out more than $3 billion in benefits, [and] $300 million in Wall Street fees while earnings were essentially flat" at 1.3 percent, Folwell said in a news release Thursday, Aug. 2. The nearly $1 billion N.C. Retirement Systems fund is managed by the N.C. Department of State Treasurer. It has more than 900,000 public employee members.

    The 20-year average of investment gains now stands at 6.1 percent. That misses the 7 percent assumed rate of return set in April, Folwell said.

    The Teachers' and State Employees' Retirement System and Local Government Employees' Retirement System boards of trustees unanimously approved lowering the rate, which was 7.2 percent.

    The change is closer to the investment portfolio's actual performance. But Folwell's push for more accurate accountability meant the funded status of the affected systems dropped by 2 to 3 percentage points. That's because the plans were showing assumed gains on paper that never materialized in the market and weren't corrected in the funded status.

    Folwell hopes to continue ratcheting down the assumed rate of return to more closely reflect real earnings.

    Following are the fiscal 2017-18 retirement system returns net of all fees and expenses:

• Public equity rose 12.5 percent.
• Private equity increased 16.3 percent.
• Non-Core Real Estate and Opportunistic Fixed Income gained 15.9 percent and 6.7 percent, respectively.
• The multi-strategy portfolio returned 6.3 percent for the 12-month period.
• Inflation-sensitive and diversifier investments increased by 6.8 percent.
• Investment-Grade Fixed Income was down 0.4 percent while cash holdings increased 1.4 percent.

    Click here for a full listing of asset classes.

    The earnings report comes as a national benchmarking survey confirmed North Carolina continues to have the second-lowest administrative costs among any U.S. public pension fund in its peer group. It also is among the five best-funded state retirement systems in the country.

    Pension administration costs for North Carolina are $23 per member, while the peer average is $93 per member. Compared annually, the state spends more than $55.3 million less due to that $70 difference.

    "We still have a long way to go," in reducing unfunded liabilities in the retirement and health plan systems, Folwell told reporters during his monthly Ask Me Anything teleconference in July.

    Nearly 50 percent of state assets will be managed in house by the end of this year, totaling about $50 billion, he told reporters. That will reduce fees paid to Wall Street investors. He said he would continue to crack down on fraud, waste, and abuse in the pension and health systems, including rooting out participants who've committed criminal acts.

    Fees paid to Wall Street investment managers have been cut by $86 million since January 2017, for a projected savings of about $344 million over four years. That figure is more than three times Folwell's original pledge to cut fees.

    Folwell advocated for a solvency fund to begin reducing unfunded liabilities, and legislative Republicans in the midst of an election year have been promoting on Twitter the GOP-led General Assembly's creation of that one-of-a-kind fund.

    Folwell convened a health-care roundtable in July to urge medical providers to find ways to cut $300 million in costs to hold down spending in the State Health Plan, which has $35 billion in unfunded liabilities. The retirement system has $15 billion in unfunded liabilities.