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North Carolina's state pension fund has lost 7% of its value in the current fiscal year

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(The Center Square) — North Carolina’s state pension plan has lost 7% in the current fiscal year, an increase from the 3.5% loss through the first quarter, State Treasurer Dale Folwell said Tuesday.

“Being down 7% in the fiscal year is a tribute to the fact that we have always focused on the pennies and the paperclips and our investment management division has always been very conservative in the management of our pension,” he said in his August Ask Me Anything call with reporters.

“The Standard & Poor’s for that period of time … is down almost 20%,” Folwell said. “So we don’t like being down 7%, but we like it better than 20%.”

North Carolina’s defined benefit pension system was 86.8% fully funded with an unfunded liability of $11.89 billion in its most recent valuation. The North Carolina’s Teachers’ and State Employees’ Retirement System was ranked ninth-best in unfunded liabilities per capita at $16,681 in a June report from the American Legislative Exchange Council.

Through July 29, NCRS market value stood at $114.3 billion, up about $3.3 billion from the same time last month but about $4.9 billion less than the March 31 estimate of $119.2 billion. The NCRS was at an estimated market value of $123.8 billion on December 31, 2021.

Folwell said Tuesday “for the first time in our state’s history, less people are paying in than are not.”

“There’s more retirement checks than paychecks,” he said.

Folwell noted the state cannot currently offer state retirees cost of living increases because the system is underfunded and paying out nearly $7 billion this year in benefits.

“In the law of North Carolina, we cannot authorize a cost of living adjustment if there are no statutory investment gains,” he said, meaning the fund must be above 100% fully funded.

“I’m very aware of the challenges our pensioners are facing as their costs continue to go up,” he said, adding that people retiring earlier and living longer has made it difficult to recoup losses following the 9/11 terrorist attacks and 2008 recession.

The Ask Me Anything segment focused primarily on the impact raging inflation is having on the state, from pending school bonds to retirement and healthcare costs. Folwell repeatedly cited a Moody’s cost of living index that shows Americans are paying about $6,000 more per year to live than in 2021.

He also cited a Bureau of Economic Analysis showing a 0.9% gross domestic product contraction for the second quarter, and a 9.1% increase in inflation in June compared to June 2021.

The treasurer said North Carolina has worked to counter those influences by keeping costs as low as possible in the state healthcare plan.

“We are very concerned about increasing costs associated with healthcare,” he said. “Because … when the average family is spending $6,000 more per year to live, that means that every time there is an increased co-pay or increased deductible, that hits them right in the wallet.”

“We have preliminarily approved the premiums for next year and for the fifth straight year we did not increase family premiums, we have frozen them,” Folwell said. “I’m disappointed in that because I wanted to lower family premiums.”

Folwell highlighted $1 billion saved through the state’s pharmacy benefit management contract and zero premium Medicare Advantage product, but cautioned that contracts renegotiated next year could lead to increases. The state’s “healthcare cartel” is currently profiting over 100% from Medicare reimbursement rates, and if they continue to refuse to negotiate taxpayers will be forced to cover a $5 billion shortfall over the next several years to remain solvent, he said.

“Healthcare costs work through the system when contracts start to be renegotiated next year,” Folwell said. “So I’m deeply concerned about these contracts being renegotiated upward.”