Pension system’s investments gain $19 million in ’20

Amid turbulent stock markets, the Arkansas State Highway Employees Retirement System’s investments gained $19 million in value to reach $1.4 billion in the fiscal year that ended June 30.

System Executive Secretary Robyn Smith said the system’s investment return in fiscal 2020 was 9.07%, while investment consultant Callan reported the median public pension fund return was 3.26%. The system’s target rate of return is 8% a year.

The value of the system’s investments increased from $1.388 billion to $1.407 billion as the system paid out $122.6 million in retirement benefits, she said. The system has more than 6,000 working and retired members.

Meanwhile, the Arkansas Judicial Retirement System’s investments increased in value by $13.3 million to $280.9 million in fiscal 2020.

The judicial system’s investment return was 6.83% in fiscal 2020 to place the system in the top 5% of public pension systems with between $100 million and $1 billion in investments, according to the system’s investment consultant Callan. The system’s annual target rate of return is 5.75%.

The system’s investments increased in value from $267.6 million to $280.9 million in fiscal 2020, said system Executive Director Duncan Baird. The system paid out $13.4 million in retirement benefits in fiscal 2020, according to system records.

The system has more than 6,000 working and retired members.

The state highway employees and judicial retirement systems are among the smallest such agencies in state government.

By comparison, the Arkansas Teacher Retirement System and Arkansas Public Employees Retirement System have investment portfolios of about $17 billion and $9 billion, respectively. They will report their investment performance in fiscal 2020 to the boards of trustees in September and later this month, respectively.

HIGHWAY EMPLOYEES

At the Arkansas Highway Employees Retirement System, stock market investments declined in value by $75 million to $856.7 million, while its bond investments increased in value by $60 million to $362.6 million and its cash holdings increased by $91.5 million to $185 million last fiscal year, Smith said.

“I felt like we did very well this year, especially given the pandemic,” she said in a written statement. “Just like everyone else, we experienced the roller coaster ride of the markets from February through June.”

The highway employees system benefited “by having a more conservative position going into the pandemic and was able to take advantage of buying opportunities by the end of the spring,” Smith said.

The system’s unfunded liabilities totaled $326.3 million with a projected payoff period of 53.2 years as of June 30, 2019, based on its latest actuarial report, she said.

Unfunded liabilities are the amount by which the system’s liabilities exceed an actuarial value of the system’s investments.

Actuaries often compare the projected payoff period for unfunded liabilities to a mortgage on a house.

As of June 30, 2019, the system included 3,379 working members with an average annual salary of $42,892 and 2,663 retired members with an average annual benefit of $33,880, Smith said. The system also included 426 disabled retired members with an average annual benefit of $16,990 and 490 beneficiaries with an average annual benefit of $15,834.

The Department of Transportation paid $23.2 million into the system in fiscal 2020, while the system’s members contributed $10.2 million, she said.

The department started paying an amount equal to 14.9% of its employees’ salaries into the system in July 2019 — up from the previous 12.9% — and the employee contribution to the system increased from 6.5% of their salaries to 7%, effective July 1 of this year, she said.

Act 295 of 2019 authorized the system’s board of trustees to increase how much the system’s working members and the department pay into the system. Last year, the rate charged to working members increased from 6% of salary to 6.5%.

Asked if the system’s trustees have proposed any changes for the Legislature to consider in the 2021 regular session, Smith said that “the trustees are waiting for the issuance of the actuarial report for [fiscal year] 2020 before making any decisions regarding proposed legislation for the 2021 legislative session.”

JUDICIAL RETIREMENT

At the Arkansas Judicial

Retirement System in fiscal 2020, its international stock market investments increased by $5.7 million in value to $45.8 million, while its domestic stock market investments gained $48,481 in value to $104.1 million, Baird and Callan reported.

They said its bond investments gained $7.7 million in value to end up at $106.2 million and its real estate investments gained $214,737 in value to total $24.4 million.

“It’s important to note that the change in dollar value over the year was impacted by the payment of benefits,” totaling $13.4 million, Baird said.

The system includes 140 working members who are paid an average salary of $168,591 a year and 149 retired members who are paid an average retirement benefit of $7,446 a month or $89,352 a year, he said.

In fiscal 2020, the state paid $8.1 million into the system, system members chipped in $1.1 million and court fees provided $394,973, according to a system report.

As of June 30, 2019, the system’s unfunded liabilities totaled $23.8 million. The projected payoff period is variable

and the remaining period for the largest portion was 13 years, according to Baird. The system was 91.6% funded as of June 30, 2019, based on its latest actuarial report.

The system includes working and retired Arkansas Supreme Court justices,

Arkansas Court of Appeals’ members and circuit judges.

Asked whether the system’s trustees have proposed any legislation for the 2021 regular session, Baird said, “They have not discussed proposing any legislation at this point.”