RALEIGH — State Treasurer Janet Cowell is urging lawmakers to give her more flexibility to invest the state’s pension money, warning that it’s “very unlikely” returns will meet projections without the change.
In a recent letter to legislative leaders, Cowell said returns on the state’s $80 billion pension fund are in jeopardy because global stock markets are hitting an all-time high and bond returns are expected to fall. If the state doesn’t meet the 7.25 percent return rate, Cowell said, taxpayers may be on the hook to buttress the promised retirement benefits.
“Lowering the target return by just 0.25 percent to 7 percent would result in more than $280 million additional General Fund dollars needed per year to fund the pension system,” the Democrat wrote. “As legislators, you will have the painful choice of asking taxpayers to pay, or not fully funding the pension, which is contrary to our state’s history.”
She is advocating for a Senate bill that would allow the treasurer to increase investments in real estate and alternatives such as hedge funds, commodities and asset-backed securities. Cowell said the new flexibility won’t guarantee the state can meet its returns, but “we’d have a fighting chance.”
The Senate gave the measure quick approval in May, as did a House committee, but now it is stalled in the House. It landed in the House Rules Committee a month ago and sits untouched. Cowell said it is a time-sensitive matter because the state needs to start shifting its assets right now.
Under the measure, Cowell could move away from publicly traded stocks and bonds, and invest up to 40 percent of the state’s pension in alternative investments. The current limit is 36 percent. The bill also would allow any one category of investments to equal as much as 15 percent of the fund’s investments.
Top Republican lawmakers say they have no interest in considering it before the impending end of the session. Rep. Edgar Starnes, the House majority leader, said he wants it to stay put, citing the risky nature of the alternative investments.
“I’m a very conservative investor,” said Starnes, a self-employed investor from Hickory. “They assume a higher amount of risk, and that troubles me.”
The bill’s chief sponsor, Sen. Ralph Hise, a Spruce Pine Republican, said the state is over-invested in bonds even as federal regulators hint that interest rates are expected to increase. “I firmly believe the riskiest thing we could be (invested) in right now is the bond market,” he said.
Hise said “political forces” want to kill the bill – notably the State Employees Association of North Carolina. The union often butts heads with Cowell and believes the state’s pension fund should be controlled by a board, not the treasurer.
Ardis Watkins, a SEANC lobbyist, said Cowell needs to “choose the folks who can get a return on an investment” and not make a bid for more power. “This is a money-maker for politicians and money managers, and not the people in the fund,” she said.
Cowell said the effort to stabilize the pension is a “math problem, not a political problem.”