S&P rated U.S. funds’ strength
By David Ranii, Staff Writer
March 1, 2007
News & Observer
North Carolina’s pension fund ranks second in financial strength in the country and is one of the few with enough assets to cover projected payments, a new study says.
The average state pension fund had 81.8 percent of the assets needed for future payments in the fiscal year that ended June 30, 2005, down from 83.5 percent in fiscal 2004, according to the report by Standard & Poor’s. North Carolina’s pension fund had 106.5 percent funding, down from 108.1 percent a year earlier. Only Florida's was better.
The state’s $70 billion-plus pension fund covers retirement benefits for 700,000 public employees and retirees. It is managed by state Treasurer Richard Moore, who is considered a likely candidate for governor in 2008.
“Our teachers, state employees and other public workers can rest assured that their pensions are safe and protected,” Moore said in a prepared statement.
Moore’s expansion in recent years into nontraditional investments such as private equity and hedge funds and his acceptance of campaign contributions from fund managers have been controversial.
The average state pension fund was overfunded in the late 1990s, but suffered in the first part of this decade when returns on stock investments slumped, S&P said. The North Carolina pension fund was overfunded when Moore took office in 2001.
North Carolina has benefited from a conservative investment philosophy and “consistency of funding,” said Robin Prunty, who co-wrote the report.
Although the General Assembly approved a budget in 2002 that withheld the state’s annual contribution to the pension plan, the state resumed funding the next year and made up for the withheld funds, Prunty said.
Some states that are overfunded can’t resist the temptation to enhance benefits that retirees receive, but “North Carolina has been pretty measured in that regard,” Prunty said.
Accumulated earnings from investments account for at least 60 percent of state pension funds nationwide, said Parry Young, who also helped write the report. The North Carolina pension fund's investment income accounted for about 78 percent of the fund for the year that ended Dec. 31, 2005.
For the year that ended Dec. 31, the North Carolina pension fund’s investments posted a 11.42 percent return, higher than the state’s relatively conservative investment goals but below the 13.21 percent median return of public pension funds nationwide, according to a recent analysis by The Charlotte Observer.