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State pension funds saw record growth in FY 2020-21, but expectations tempered for FY 2021-22

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State pension funds grew by a record 32.1% in the 2020-21 budget year, but the executive director of the state Investment Management Board said Wednesday that won’t happen again in fiscal 2021-22.

“We’ve all got to revel in that, because it’s probably not going to last,” the IMB’s Craig Slaughter told the Consolidated Public Retirement Board.

Slaughter said the pension funds’ previous best year appears to be fiscal 1983-84 when assets grew 30%, as the value of fixed income securities soared when the Fed cut interest rates in order to end the runaway inflation of the 1970s and early 1980s.

“It appears to be a record for us,” Slaughter said of growth for the 2020-21 budget year, which ended June 30, a year that saw state pension fund assets grow from about $16 billion to more than $20 billion.

However, for the first three months of the 2021-22 budget year, pension fund investments are off to a “very weak start,” he said, with 1.2% growth in July and August wiped out by losses in September and so far in October.

He said that’s to be expected, as investors get nervous after long upturns in the stock markets.

“Any little thing that brings uncertainty to the equation makes people nervous,” Slaughter said.

Two factors driving the current market volatility are the COVID-19 surge and the congressional impasse over the infrastructure and Build Back Better bills, he said, adding that he expects both issues to resolve themselves in the short-term.

Slaughter said as vaccination rates increase, and numbers of people infected with the virus top out, future COVID-19 surges “won’t be so dramatic” as the current surge.

As for Congress, he said, “I really feel like all that will get done. It’s probably just a matter of when.”

Slaughter also said he expects inflation on energy and commodity prices to moderate relatively soon.

He added, “I really kind of feel like we’ll be OK for the rest of the year.”

However, he said the board should temper expectations for fiscal 2021-22, with a 7.25% return on investments being a reasonable goal.

Also during the Consolidated Retirement Board meeting:

  • Executive Director Jeffrey Fleck said not as many teachers as usual retired in July.

He said July is normally CPRB’s busiest month for processing retirement applications, with a combined average of about 1,000 Public Employees Retirement System and Teachers Retirement System participants taking retirement as the school year ends.

This July, he said there were only 830 retirements, with only 694 teachers retiring, adding, “I’m not sure why that is.”

  • Assets in the Teachers Defined Contribution plan also grew in the 2020-21 budget year, going from under $500 million to $710 million.

That works out to an average of about $183,000 for each of the 3,881 remaining participants in the plan, which was closed to new enrollees in 2005.

  • Fleck said the CPRB could face staffing issues over the next five years as large numbers of employees will reach retirement age.

He said 30% of all employees and a majority of management will be eligible to retire in the next five years.

Fleck said he wants to assure a smooth transition, adding, “It’s something we’re looking at, and it’s part of putting together a five-year plan.”