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State workers say treasurer gambling with their pensions

Posted September 5, 2013

— Lawmakers this year handed State Treasurer Janet Cowell authority to tweak the strategy of the state pension to boost earnings, but state workers say the increased risk isn't worth it.

Senate Bill 558 allows Cowell to shift up to 35 percent of the pension money into alternative investments, such as real estate, hedge funds, commodities and private equity. The previous cap on alternative investments was 34 percent, and in addition to the one-point increase, Cowell's office now has more flexibility within each investment type.

"It's my neck on the line and I go to bed every night thinking about that responsibility," Cowell said.

More alternative investments mean less pension money in lower-performing bonds. Changing interest rates have led to losses in the state's bond portfolio in recent months, she said.

"The North Carolina pension fund has always been a big investor in bonds, and that has served us really well, but we're at the end of that runway," she said.

Ardis Watkins, director of legislative affairs for the State Employees Association of North Carolina, said alternative investments usually mean large fees charged by outside portfolio managers.

"It's an awful idea, and we don't need to be putting an incredibly risky amount of money in alternative investments," Watkins said.

From 2000 to 2012, the state pension fund grew 32 percent, from $59 billion to $78 billion. Last year alone, assets grew by more than 9 percent.

Records obtained by WRAL News show that, during that same period, outside management fees ballooned more than 750 percent, from $41 million to $352 million.

Cowell acknowledged that shifting funds around would likely result in some higher fees "in the short term."

Pension funds across the country are shifting funds out of bonds into more expensive alternative investments, and Watkins said investment bankers are pushing the changes.

"Wall Street, in this case, controlled Jones Street," she said. "This is without question a very dangerous road."

Richard Warr, a finance professor at North Carolina State University's Poole College of Management, said North Carolina should steer away from expensive alternatives and plow fee savings into index funds that mirror the overall stock market.

"Everybody's playing the same game. There cannot be a magic bullet. We cannot all beat the market," Warr said. "(We should) basically try to lock in the broad market returns and build a low-cost, very diversified portfolio."

Cowell contends that she's got to worry about the long and short term.

"That is sort of the choice: Dial up slightly the risk-return, otherwise, the other choice is you just put in more taxpayer money (to meet obligations)," she said.

SEANC has fought for years to decrease the control the State Treasurer's Office has over the pension fund. Cowell is forming a study committee to consider other management models.



61 Comments

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  • wayneboyd Sep 9, 2013

    Give it to the feds, see what a great job they did with Social Security.

  • Rebelyell55 Sep 9, 2013

    Ms. Cowell is in a tough spot. She is doing a daggum good job with a very, very difficult situation. I applaud her ability to look forward and prepare.

    Luv2Camp
    September 7, 2013 12:17 p.m.........I thought so too, until I saw the hughes raises she gave out to people who are doing her job for her. There was just no justification for wasting tax payers money like that.

  • Rebelyell55 Sep 9, 2013

    Lady is playing it fast and loose. Forming a committee, wonder how much that gonna cost the tax payers?

  • wlbbjb Sep 9, 2013

    "It's my neck on the line and I go to bed every night thinking about that responsibility," Cowell said.

    And that's suppose to make us feel better. PLEASE. When you lose or waste our money are you going to replace it with money out of your pocket?

  • wildpig777 Sep 9, 2013

    Consider yourself lucky you have a pension fund to worry about. I always worked in the private sector, you know where we made the money to pay for your benefits. I lost about 80% of the money I put into my retirement fund due to the economy tanking. Be thankful for what you have.

    jpm1994
    September 8, 2013 10:32 a.m.
    it is obvious you blame state employees for your bad judgement concerning retirement options. perhaps you should consider using a financial advisor from here on out to hopefully avoid the POOR JUDGEMENT YOU HAVE DISPLAYED?

  • wildpig777 Sep 9, 2013

    wildpig777; You said "i'll just step right up and set you straight- becuz your perception is highly inaccurate. the tax payers DO NOT FUND the pension plan-- yall never have and never will." Where do you think the money comes from to pay for ALL government operations? It comes from We the people, the tax payers. Every penny the government spends and or wastes comes from taxes. You would do well to keep this fact in mind when you are complaining.

    jpm1994
    evidently you cannot understand what you read so i'll say it once more-- the nc state employees retirement plan is SELF FUNDED. now what part of that don't you accept? 6% of every dolla earned by each state employ mandatorily is seized by the state and put into the plan.

    so the bottom line is-- you like blogger conservative voter are -- in error.

  • jpm1994 Sep 8, 2013

    wildpig777; You said "i'll just step right up and set you straight- becuz your perception is highly inaccurate. the tax payers DO NOT FUND the pension plan-- yall never have and never will." Where do you think the money comes from to pay for ALL government operations? It comes from We the people, the tax payers. Every penny the government spends and or wastes comes from taxes. You would do well to keep this fact in mind when you are complaining.

  • jpm1994 Sep 8, 2013

    Consider yourself lucky you have a pension fund to worry about. I always worked in the private sector, you know where we made the money to pay for your benefits. I lost about 80% of the money I put into my retirement fund due to the economy tanking. Be thankful for what you have.

  • Luv2Camp Sep 7, 2013

    Ms. Cowell is doing a good job. She recognizes market returns are way down and should stay that way for many years to come. She also recognizes the State of NC does not wish to continue to put money into a defined benefit plan that will, eventually, be underfunded unless the state puts a lot of money into the plan. Ask Illinois and other northern states how their employee pension plans are doing.

    Ms. Cowell is in a tough spot. She is doing a daggum good job with a very, very difficult situation. I applaud her ability to look forward and prepare.

  • nerdlywehunt Sep 7, 2013

    John Kerry is worth more than Mitt Romney. Complain about someone else.

    But John Kerry is not running a hedge fund!!!!!!!! Get it???? Man this republican "logic" get scarier every day!

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