Pension Investments On A Roll

'05 Was Another Winning Year For Fund

MARCH 2006 - For the third straight year, the Commonwealth's pension investment fund has been a big winner. With a Year 2005 investment return of 12.69%, the fund has again exceeded its benchmark of 8.25% and grown in value to $40.2 billion at year's end - up from $36 billion at the end of 2004.

The 12.69% earnings came on the heels of a return of 14.42% in 2004 and a record 26.33% in 2003. Members will recall that the fund lost 8.94% in 2002, preceded by -5.31% in 2001 and -1.21% in 2000 - three straight losing years. Because of the market slump during those three years, it was imperative that the fund get back on track in a big way - and it did.

Officially known as the Pension Reserves Investment Trust (PRIT) Fund, it is the trust fund of the State and Teachers' Retirement Systems, as well as 67 local retirement systems, that have placed all or part of their funds with PRIT.

The fund is managed by a nine-member board of trustees, the Pension Reserves Investment Management (PRIM) Board, chaired by State Treasurer Tim Cahill. After the three-year slump in the stock market, the Board continued to reduce its allocation in U.S. equities (stocks) which at one time was about 45% of the total fund. Last year 28% of the fund was in U.S. equities and is being further reduced to 21%. Last year U.S. equities earned 6.25%. The Board still retains 15% of its fund in fixed income (bonds) as sort of a safety net. Even though bonds earned only 2.87% last year, they have earned 8.90% on an annualized basis.

The big winners last year were international equities (14.63%), emerging markets (39.54%), real estate (23.00%), timber (26.49%) and alternative investments such as buyouts and venture capital (40.38%). About 40% of the PRIT Fund is currently invested in these five categories.

Created by the Legislature in 1984 to address the Commonwealth's out-of-control pension liability, which was strangling our retirement plan, the fund is scheduled to reduce the state's unfunded pension liability to zero by 2023. The original schedule called for full funding by 2028, but that was later reduced when it appear that the fund's earnings could reach its goal by an earlier date. The fund's annualized rate of investment return is 11.14%.

"We're doing well," said PRIM Board member Ralph White, "but that's not helping current retirees who are locked into a $12,000 COLA base. It's time to share the gains (financial) with our members in the form of a higher base. This is what we continue to fight for on behalf of retirees at both the state and local levels."