Teacher-fund investments reach $16.1B
Largest state retiree system rebounds from dreary year
The investments of the Arkansas Teacher Retirement System increased in value by $1.7 billion, totaling $16.1 billion, last fiscal year, as the system reaped the benefits of growing stock investments, according to its consultants.
The retirement system earned an investment return of 16.1 percent in fiscal 2017, and its performance ranked in the top 1 percent of public pension systems with more than $1 billion in assets, Aon Hewitt Investment Consulting of Chicago said in a written report. The median return for these public retirement systems was 12.3 percent last fiscal year, the consultant said.
By comparison, the system’s investments dropped in value by $572 million, to $14.4 billion, in fiscal 2016, which included the worst stretch for the stock market since 2008.
Jeff Stubblefield, chairman of the system’s board of trustees, said Tuesday that he’s “just very, very happy” with investments’ performance last fiscal year. Fiscal 2017 ended June 30.
The performance is a testament to the strategies recommended by the retirement system’s consultants, and to the oversight by system Director George Hopkins and his staff, said Stubblefield, who also is superintendent
of the Charleston School District.
The Teacher Retirement System is state government’s largest retirement system with more than 100,000 working and retired members.
Its employers, including school districts, paid $414.5 million into the system in fiscal 2017, while members contributed $132.1 million, said Hopkins. Employers pay 14 percent of their employees’ payroll to the system, while many members chip in 6 percent of their pay.
The system paid out $1.02 billion in benefits to retirees last fiscal year, Hopkins said.
During the past five years, the Teacher Retirement System’s investment return averaged 10.6 percent a year to rank in the top 1 percent of public pension systems with more than $1 billion in assets, Aon Hewitt Investment Consulting reported. During the past 10 years, the system’s return averaged 6 percent a year to rank in the top 8 percent, the consultant said.
Hopkins — who has been director since December 2008 — said that “despite choppy markets at times, the ATRS Board has maintained a long-term view of investments and continues to make investments that should provide greater returns in the long run.
“Importantly, the ATRS Board has focused on diversification across all asset classes with a concentration on forward-looking investments,” Hopkins said in a written statement.
The system has moved some stock market and bond investments to “low-cost index funds while maintaining stellar managers that add value, net of fees. The important move has been to move to a global view in investments,” Hopkins said. “[Investment] returns also involve an element of luck and about being in the right place at the right time in a particular evaluation period. ATRS benefited by being in the places.”
In fiscal 2017, the system’s stock market investments earned a return of 22.1 percent to finish the fiscal year valued at $9.2 billion, and the system’s bond investments earned a return of 5.2 percent to reach $2.5 billion, according to Aon Hewitt Investment Consulting.
The system’s private equity investments gained a return of 16.7 percent to reach $1.6 billion at the end of fiscal 2017, Aon Hewitt reported.
Real estate investments earned a return of 6.9 percent to total $1.3 billion by the end of the fiscal year, and so-called opportunistic and alternative investments gained a return of 6.8 percent to reach $665 million, the investment consultant said.
Timber investments earned a return of 8 percent to total $281.4 million, and agricultural investments earned 4.3 percent to reach $170.7 million, Aon Hewitt reported.
The system’s investments also included $158.3 million in cash and $112.8 million in infrastructure investments.
The system included 68,368 working members with an average age of 44.4 years, average service of 10.3 years and an average annual salary of $37,325 of as June 30, 2016, according to the latest actuarial report by system actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich. The system’s 43,095 retired members were paid benefits totaling $984 million in fiscal 2016— an average of $22,833 a year.
Hopkins said Gabriel, Roeder, Smith & Co.’s fiscal 2017 figures for working members and retirees should be presented to the board of trustees in December.
As of June 30, 2016, the system’s unfunded liabilities totaled $3.57 billion with a projected payoff period of 29 years, according to Gabriel, Roeder, Smith & Co. Unfunded liabilities are the amount by which liabilities exceed an actuarial value of the system’s assets. Actuaries often compare unfunded liabilities to a home mortgage.
Asked how the fiscal 2017 investment return will affect unfunded liabilities and their projected payoff period, Hopkins said that “any time the system’s returns are above the assumed rate of return, it has the positive impact of reducing unfunded liabilities.
“It is too early for me to estimate what that impact will be,” he added.
For about a year, system officials have been considering reducing the system’s projected investment return, which is now 8 percent a year, Hopkins said.
“The returns in the last fiscal year will have little or no impact on the decision that the ATRS will make,” Hopkins said. “However, strong returns do make implementation of a reduced rate of return less impactful.”
“Even though we did [remarkably] in the markets, we still have to look at the guidelines that actuaries are reviewing,” Stubblefield said. He noted that Hopkins is scheduled to meet with actuaries this week.