State pension fund lost $17B last year

RALEIGH, N.C. — The state pension fund lost $17 billion last year – nearly 20 percent of its total value – because of the the downturn in the housing and financial markets, State Treasurer Janet Cowell said Friday.

The fund, which covers 820,000 state and local government employees, including teachers, emergency officials, and retirees, was valued at $60 billion at the end of December. At the end of 2007, the fund had been valued at about $77.1 billion.

U.S. stocks plummeted at the beginning of October, with the Dow Jones industrial average ending the fourth quarter down 19 percent.

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The decline was the pension fund's first since six years ago, when it lost about 7 percent of its value, and returns the total value to 2003 levels.

Despite the losses, Cowell said, retirees don't have to worry about the safety of their pension checks.

"That is something that can't be renegotiated. It's not something that can be taken away; it is a contractual requirement," she said.

Revenue for the pension fund comes from three sources: payroll deductions of government workers, state and local appropriations equivalent to 3.36 percent of payroll, and investment earnings.

Cowell said she plans to ask the General Assembly for an extra $29 million in the current fiscal year's budget to begin making up the losses. The effort would stretch over five years and would likely entail greater increases in future years, she said.

Lawmakers might have difficulty meeting the request, as the state budget deficit already is projected to hit $2 billion.

Erica Baldwin, spokeswoman for the State Employee Association of North Carolina, said the state should continue to pay more into the pension fund in the future since its current contribution is roughly half that of the employees' 6 percent contribution.

"I think, in good years, if they had gone to the employer – the state – for a match to the employee contribution, we wouldn't be facing as much need from the state budget this year," Baldwin said.

Local governments also will be hit hard, Cowell said.

"They're aware they also will have to be putting additional monies in, you know, at a time when we're having tight budgets," she said.

The pension fund usually needs to take in about $400 million in employer contributions to meet all of its obligations to retirees, she said.

The fund is in better shape than many other public pension funds because the state began shifting money out of stocks and into bonds two years ago, Cowell said. The asset mix is now 41 percent stocks and 46 percent bonds, compared with a usual 50-40 stock-bond mix, she said.

The fund is expected to take more hits in the first quarter of 2009 because of the decline in the value of real estate, which makes up a small portion of the fund's investments, she said.

Cowell said she and her investment team plan to rebalance the fund's portfolio in the coming weeks but will remain conservative. She is targeting a 7 percent return this year, but she said she isn't sure yet how to achieve it.

“During times of market volatility, we don’t ‘double down’ in search of more risk to compensate for our losses,” she said. “We buckle down and continue a careful approach focused on a long-term strategy that ultimately benefits the people of North Carolina.”