(The Center Square) – New Hampshire’s pension fund managers are trying to ride out volatile swings in the stock markets that are impacting retirement systems across the country.
Fund managers say the state’s retirement system has adopted a long-term investment strategy to meet its funding requirements and to help reduce risk and mitigate volatility.
“Like everyone in the market, we ride the ups and downs,” said Marty Karlon, a spokesman for the New Hampshire Retirement System. “We’re a long-term investor.”
Karlon said like a lot of public pension systems, New Hampshire uses a “smoothing of assets” approach that spreads out investment returns over a five-year period.
“How we end up this year is going to be absorbed over a five-year period,” he said. “So those big swings from year to year are going to even out.”
A quarterly report shows the state’s pension fund grew by more than $2.4 billion from June 30, 2020 to June 2021 – a record 29.4% return on investment and the first time that the fund had exceeded $11 billion in assets.
But the pension fund, which was valued at $11.5 billion as of March 31, has seen few gains over the past nine months amid volatility in the stock market, the report shows.
“Market volatility is always an issue,” Karlon said. “That’s why over the past 10 years NHRS, along with a lot of pension funds, have lowered their assumptions.”
In 2020, New Hampshire’s pension fund managers reduced the investment assumption to 6.75%, which is down from 8.5% a decade ago, Karlon said.
“We’ve been through this before,” he said. “There’s enough assets in the fund that we don’t have any cash flow issues, so we’re just trying to ride it out and make adjustments where needed.”
Overall, New Hampshire’s retirement fund has about 48,500 active members paying into the system, with about 41,000 retirees receiving benefits, according to NHRS.
Contributions into the fund totaled more than $618 million in fiscal year 2022, as of March 31, while more than $680 million in benefits have been paid out.
Stock market volatility over the past several years has been a roller coaster ride for state pension plans with investments across a broad spectrum of markets.
At the start of the COVID-19 pandemic in early 2020, the S&P 500 index plummeted 34% which led pension asset values to decline. A few months later the market rebounded, pushing returns into positive territory for fiscal year 2020 and by an average of 27% in fiscal year 2021, according to the Pew Charitable Trust, which tracks state pensions.
As a result, state pension plan assets ballooned by over $500 billion, driving the funded ratio – the share of promised benefits that plans have funds to pay for – above 80% for the first time since 2008, according to Pew.
Pew researchers suggest that state retirement systems’ ability to meet their commitments to members hinges on investments that are subject to stock market swings. More than two-thirds of the assets are tied to risky investments, such as publicly traded stocks, private equity, real estate and hedge funds, the group noted in a recent report.
“After shifting away from relatively safe bonds toward comparatively risky stocks from the 1950s to the 1990s, pension funds have turned more and more over the past 15 years to alternative assets to diversify their portfolios and achieve return targets,” Pew researchers wrote.
Overall, Pew researchers suggested that state pension fund returns will continue to decline in coming years amid the market volatility.