Tag: permanent benefit increase

Arizona Pension CIO Counters Claims of Being States Worst-Performing System

Arizona sign

Ryan Parham, chief investment officer of the Arizona Public Safety Personnel Retirement System (PSPRS), penned a piece in the Arizona Capitol Times on Thursday defending his fund against claims of being Arizona’s “worst-performing pension plan.”

But Parham says the raw return numbers don’t tell the whole story. Here’s what Parham has to say:

All too often, fiction and gossip move faster than truth and reason. As such, it is often stated by our detractors that our $8 billion portfolio is the state’s “worst-performing pension plan,” which gives the impression that our investment staff is incompetent and responsible for the trust’s sagging pension funding levels.

The truth is: the Arizona Public Safety Personnel Retirement System has an enviable investment record. Prominent industry consultants rank PSPRS among the top 4 percent of all U.S. pension funds in risk-adjusted returns for the past three years. We also join the top 11 percent of all U.S. pension funds for the past five years. While these facts might not make for a provocative headline, they matter to our beneficiaries, our contributors, our staff and our elected officials.

[…]

Last fiscal year, PSPRS outperformed national risk-adjusted averages by one half of 1 percent. It sounds miniscule, but it meant an additional $380 million in value to the trust. Our actively managed strategy is simple: Diversify assets and reduce exposure to publicly traded equities, the greatest driver of market volatility. High-risk strategies and lack of diversification have proven disastrous for PSPRS, as evidenced by $1 billion losses suffered in the 2000-2001 “dot-com” market crash.

While it is true that in recent years PSPRS’ returns have been less than its sister plan, the Arizona State Retirement System (ASRS), it is important to remember our innovative, low-risk, moderate return strategy is by conscious design, due to a pension benefit that PSPRS alone must pay to pensioners. This benefit, called the Permanent Benefit Increase, or “PBI,” siphons and distributes half of all returns in excess of 9 percent to eligible retirees. Not only are these increased payment levels made permanent, the investment gains only serve to increase – not decrease – unfunded future liabilities.

Read the entire column here.

 

Photo: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons

Arizona’s Largest Pension May Boost Retiree Benefits, Lower Employee Contributions

Entering Arizona

The Arizona State Retirement System (ASRS) says there could be a permanent benefit increase on the horizon—the first since 2005. System officials also indicated that public workers could see their contributions decrease.

ASRS is 77 percent funded – but officials say higher investment returns, better cash flow and reduced liabilities have opened the door for the potential benefit increases.

From the Arizona Republic:

Paul Matson, chief executive of the $32 billion Arizona State Retirement System, said he expects retirees could see a permanent benefit increase, of undetermined size, sometime in the next three or four years. The last increase for the pension fund and its more than half-a-million members came in 2005. Benefit hikes are made possible by excess investment earnings, largely from the stock market, he said.

Similarly, an improving financial backdrop for the pension system also could mean that more than 200,000 public-sector workers in Arizona — along with the cities, counties, state agencies, school districts and other entities that employ them — could start paying slightly lower contributions to support the system, Matson added.

[…]

At a time when public pension programs including the Arizona State Retirement System remain significantly underfunded, Matson’s assessment was surprisingly upbeat. But recent fixes and long-term trends have put the system in much better shape, he said.

“We have a strong, healthy system that’s fully sustainable on the retirement and health sides,” he said in an interview with The Arizona Republic. The program provides retirement, health and long-term disability benefits.

In an interview with the Arizona Republic, ASRS chief executive Paul Matson expounded on the reasons behind the proposed benefit increase:

Matson cited three main reasons for the improvement:

– Changes in certain benefit formulas have reduced the system’s liabilities. Working with the Legislature over the past decade, the Arizona State Retirement System has closed loopholes and made other adjustments. One involved new workers joining the system. In prior years, many new hires were allowed to purchase retirement-service credits at a cost of about 40 cents on the dollar. That unsustainable practice and about a dozen others have been restricted or eliminated, Matson said.

– Contribution increases have boosted the system’s cash flow and assets. Employees and their employers each currently make contributions into the system equivalent to 11.6 percent of worker salary. That’s up from an unsustainably low 2.5 percent a dozen years ago. As noted, the recent trend of contribution hikes eventually will be followed by modest decreases, before contributions level out around 6.75 percent many years down the road.

– Higher investment returns have bolstered the system’s assets. The stock market has been on a tear, rising about 200 percent between the bottom in early 2009 and the recent peak in September of this year. Although prices have retreated over the past few weeks, the trend for most of the last five years has been favorable. The Arizona State Retirement System generated an average yearly compounded return of 14.2 percent over the five years through June 2014, including a gain of 18.6 percent in the most recent year. Those returns are after expenses.

Matson did say he doesn’t expect investment performance to be quite as good, year in and year out, as it has been the previous 5 years.

ASRS has 551,000 members and manages $32 billion of assets.