The fund, which encompasses the state and teacher pension funds, plus several city, town and county funds, lost a record $2.3 billion in August. When combined with a July loss, this dropped the fund’s value to $21.2 billion, down from its peak value of $23.9 billion at the end of June. The total effect of these losses meant that the fund was running a negative 1.51% for the first 8 months of the year.

In September, however, despite a continued sluggish market, the fund rebounded with a 3.34% earnings, bringing the fund back in the black at 1.85% for 1998, with three months to go.

Fund Buoyed by Past Earnings

Association President Ralph White, a PRIT Fund trustee, said that members should not be alarmed by the fund’s losses. “Our fund is solidly buoyed by past earnings … Its asset allocation takes into consideration that there will be market downturns.

“For example, in 1990 we lost 2.26% for the year. But in ‘95, ‘96 and ‘97, we earned 24.2%, 16.3% and 18.5%, respectively. With a new treasurer (chairman) coming aboard, we will undoubtedly be revisiting our asset allocation, but I don’t foresee any major changes in our overall strategy.”

Prior to 1984, at which time PRIT adopted an aggressive investment strategy, under then chairman Robert Q. Crane, the Commonwealth’s pension fund had been earning less on its investments than that of other states. As a result, our state’s pension fund was floundering, faced with a bleak future.

The new strategy, heavily weighted in equities (stocks), when combined with backing by the Legislature in the form of greatly increased appropriations, saw the fund grow from $4 billion to its current level since that time. Importantly, despite an occasional off year, such as this year, the fund’s investment earnings have averaged 12.02% yearly since 1984.

COLA Connection

“Under the new pension cost-of-living law (Chapter 17, Acts of 1997), retirement boards must consider the stability of their pension funds when voting to pay a COLA each year. Most pension funds assume an earnings of between 8.0% and 8.5% annualized on their long-range funding schedules,” White pointed out.

“Since all pension funds in this state will still be at a double-digit annualized level at the end of this year, I see no problem for the 1999 COLA. On the other hand, if the market slump continues into 1999, this could present an obstacle when we attempt to raise the $12,000 COLA base to a higher level.

“Of immediate concern to our members will be the percentage used to calculate next July’s COLA. Since we are currently locked into the Social Security Consumer Price Index (CPI), we will be looking at a COLA of only 1.3%,” White added.

“I do anticipate some grumbling within the ranks when our members are provided with the official figure. But there is no point in fudging the issue - we might as well get it out in the open right now.