Carroll South, speaking to the Legislative Finance Committee, said the Public Employees' Retirement System had a paper loss of $195 million, while the Teachers' Retirement System lost $150 million. The other seven retirement systems for groups including sheriffs, game wardens, Highway Patrol officers, firefighters and judges had paper losses totaling $41 million.
Saying she was getting calls from constituents in the retirement systems, Rep. Janna Taylor, R-Dayton, pressed South for an update on how much the additional fund losses are from July 1 through this week, when stocks have further plunged.
He did say the Board of Investments' custodial bank said the international stock index has fallen by 34 percent from July 1 through Wednesday, while the domestic stock index has dropped by 23 percent, with markets dropping even more Thursday and Friday.
But as Sen. John Cobb, R-Augusta, pointed out: “Bottom line, everyone's still going to get their (pension) check. They're the most protected people out there.”
South agreed, saying public employees in Montana are constitutionally guaranteed of getting their pensions.
South defended investing pension funds in stocks over the long term, along with other investment vehicles such as bonds and real estate.
“During the recent turmoil, I've had several people ask me why we invest in stocks,” he said. “It would be riskier not to invest in stocks for the taxpayer.”
The Public Employees Retirement System actuary has assumed the investments must generate an 8 percent return, while the PERS actual returns have averaged 8.47 percent since fiscal 1994, South said.
The Standard and Poor's 500 stock index over that time has shown a 9.79 percent return, while the return on bonds has been 6.63 percent and 91-day U.S. Treasury bills 4.16 percent. If the board invested only in Treasury bills yielding 4.16 percent, South said taxpayers would have to make up the 4 percentage point difference to reach the 8 percent requirement every year.
“We have to invest pension fund money in stocks, or we will never get the kind of return that's needed,” he said.
South added, “We simply have to keep our eye on the long-term goal of generating 8 percent over time.”
In the year ending June 30, South said the state pension funds spent a combined $454.5 million in benefits to retirees and their administrative costs. On the other side, current workers and government agencies contributed $346.1 million to the retirement funds, and the funds earned $198.6 million, despite the losses, for a total of $544.7 million.
Responding to a question from Rep. Ron Erickson, D-Missoula, South said investments in bonds and real estate are providing the stability in the pension funds' cash flow, not stock dividends. South said dividends amounted to $45 million of the $198.6 million in income.
Sen. John Brueggeman, R-Polson, asked whether the Legislature will have to bail out the pension funds with taxpayers' money to make up for the investment losses so retirees can receive their pension checks.
“That's simply not going to happen in the near future,” South said.
He also held out optimism that the markets eventually will turn the corner and start improving.
“Our opinion is that it's certainly not going to slide much further,” he said. “There is certain stability.”
South was confident that external money managers will begin buying stocks eventually.
“We have to believe at some point what all these governments are doing has to help,” he said.
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