Twelve statewide organizations representing public employees, retirees, and units of local government came together this week to send a joint memorandum to all members of the General Assembly in opposition to House Bill 2758. This bill would transfer the decision making authority on investment of our pension funds from the elected State Treasurer to the 22-member Board of Trustees of the Retirement Systems. The organizations that signed the memorandum believe that the current system with the final decisions on pension investments handled by a single responsible party has worked well. We fear that turning this responsibility over to a board that does not have the necessary expertise would be a serious mistake. The joint memorandum is presented below in it entirety.
The current economic downturn has caused many of us to worry about our budgets, our savings and our investments. Fortunately, 820,000 North Carolinians can rest assured that their pensions are secure – even in times of economic trouble. Our teachers, law enforcement officers, firefighters and state and local employees are members of the second best pension fund in the country, and they can count on their benefits to be there for them. Our pension fund is the envy of many across the country, and it is grounded in the principle of “slow and steady wins the race.” It is an investment strategy that has served our state pension fund well through bull and bear markets.
That is why the changes being advocated by the State Employees Association should be of great concern to the over 322,000 state, city, county, town, and school system employees and retirees we represent who are counting on North Carolina’s tradition of a rock solid pension fund.
The bottom line is that HB 2758 would increase risk for the pension fund, for its members and for the state. The bill represents a fundamental change in the investment strategy that has served the state and its workers well for decades. It would mean abandoning the strong tradition of Treasurers Ed Gill and Harlan Boyles, in which the pension fund has been carefully managed to safeguard workers’ retirement.
Changing that philosophy and adding risk would leave our workers and retirees extremely vulnerable to economic downturns. For the first quarter of 2008, when the stock market and the economy were hit the hardest since the 2001-2002 recession, North Carolina’s pension fund performed better than its peers. Our pension fund returns for the first quarter were almost a full percentage point higher than the median return for public pension funds with more than $1 billion in assets, according to Wilshire, the most widely accepted benchmark for the performance of institutional assets. North Carolina’s fund performed far better than board-run pension funds in California, Florida, Wisconsin, Oregon and others throughout the country.
In addition, the fund has already experienced a rebound in both stocks and overall performance. For the three months ending April 30th, the pension fund’s stocks posted gains, and the overall return of the fund has remained steady. During this challenging economic environment, North Carolina can expect its pension fund to remain one of the best in the country. The careful management of the fund, the General Assembly’s commitment to retirement and continued modernization of investments will protect our members’ investments.
In the recession of 2001 and 2002, North Carolina’s pension fund led the nation in investment returns because of our careful and steady management. California’s teacher pension fund, which is run by a board and has a much more aggressive, risky investment strategy, posted returns of -7.05 percent in 2001 and -8.74 percent in 2002, while North Carolina experienced much milder losses with returns of -2.04 percent and -4.04 percent in the same years. The pension fund is a stool supported by three legs – investment income, state appropriations and employee contributions. During bad economic times, two of these legs get hit as investments suffer and the state budget dries up. Exposing our retirees and workers to that kind of volatility is not in the best interest of our state.
When considering a change to a system that has served us so well, we have a responsibility to separate fact from fiction. North Carolina has been ranked as one of the strongest pension funds in the country for six years running, including being ranked as the second best fund for three years in a row by Standard & Poor’s. In 2000, state pension funds had, on average, all of the resources needed to fund future payments. By 2006, that average nationwide dropped to 81 percent, while North Carolina’s remained at 106 percent.
When all the facts are on the table, we all agree that North Carolina’s pension fund has served our teachers, our firefighters, our law enforcement officers, our rescue personnel, our EMS personnel and our state well. There is no reason to expect that a board that is not accountable to the people of North Carolina would be better managers of the fund. Slow, steady, conservative performance is exactly what we ought to be doing.
CONFEREES DISCUSS BUDGET DIFFERENCES