NC pension fund will be a bit less optimistic about its investments

The $90 billion state pension fund has lowered its assumed investment returns ever-so-slightly.

The new assumed rate of return is 7.20 percent annually, down from 7.25 percent.

The change was approved last week by the boards of directors of the Teachers’ and State Employees’ Retirement System and the Local Government Employees’ Retirement System at the recommendation of State Treasurer Dale Folwell, who plans to recommend additional reductions in the future.

Folwell promised during last year’s election campaign to lower the assumed rate of return, which he argued was overly optimistic. Folwell, a Republican, succeeded Democrat Janet Cowell, who chose not to run for a third term.

Over the past 15 years the state’s annualized rate of return on investments was 6 percent, including 6.3 percent last year.

“When interest rates were high, it was relatively easy to make your assumed rate by just investing in low-risk bonds,” Folwell said in a prepared statement. “Since we have been in an essentially zero interest rate environment for the past 15 years, achieving that same rate in the future is unrealistic.”

Folwell plans to recommend further reducing the assumed rate of return in future years, said spokesman Frank Lester.

“The treasurer has embraced the concept of gradualism,” he said.

The North Carolina pension fund provides retirement benefits and savings for more than 950,000 North Carolinians. It relies on contributions from both employees and public employers, as well as its investment returns.

The state legislature has been fully funding the pension plan’s current liabilities in recent years, but the plan’s long-term liabilities aren’t 100 percent funded. Lowering the assumed rate of return reduces the percent at which the Teachers’ and State Employees’ Retirement System is funded to 91.1 percent from 91.6 percent.

For the Local Government Employees’ Retirement System, it’s been reduced to 95.4 percent from 95.9 percent.

Those funding levels place North Carolina’s pension system among the best-funded systems in the country.

The assumed rate of return of public pension funds nationwide ranges from 6.75 percent to 8 percent, according to a report released this month by The Pew Charitable Trusts. But in 2015, the median rate of return for those funds was 3.6 percent, well short of those targets.

This story was originally published April 25, 2017 at 1:23 PM with the headline "NC pension fund will be a bit less optimistic about its investments."