Idaho’s pension system failed to keep up with projected investment targets in fiscal year 2016, digging an even deeper hole for state retirement funds.
Kelly Cross, the Public Employee Retirement System of Idaho’s communication manager, told IdahoReporter.com that state pension system investments returned a projected, unaudited 1.53 percent on investments in fiscal year 2016, which concluded June 30.
That 1.53 percent is far below the system’s 7 percent long-term target rate.
This is the second straight year PERSI failed to hit its investment target. In fiscal year 2015, the fund’s investments eked out a meager 3.03 percent rate of return.
In fiscal year 2014, PERSI surpassed its goals. During that period the fund returned more than 24 percent on its investments.
According to board minutes from its August 18, 2015 meeting, PERSI has earned a 6.99 percent on investments through the 10-years prior. The pension system has not yet updated that figure to account for fiscal year 2016 numbers.
PERSI boasts a 7.53 percent rate of return on investments through the last 20 years, the fund’s oversight board revealed at its June 2016 meeting.
PERSI’s general fund, which serves more than 42,000 retired teachers, police, firefighters and other government workers, is valued at more than $14.2 billion.
Due to the poor investment performance, plus growing retirement rolls, PERSI’s general fund is short in meeting current and long-term obligations by more than $2.3 billion.
PERSI’s other account, the Judicial Retirement Fund, is valued at just more than $75 million. Cross told IdahoReporter.com, this fund is short by about $25.9 million.
The two pension funds don’t have to make up their respective deficits immediately, but state law mandates PERSI’s five-member board continually seek solvency. If the funds’ performances don’t improve, board officers will have to turn to taxpayers to make up the difference.
The prospect of further burdening taxpayers looms. PERSI Executive Director Don Drum reported at the June 2016 meeting, government employers are “cautiously concerned” about the need to raise pension contribution rates, which could mean tax hikes, government service reductions or both.
Most government workers pay 6.79 percent of their salary into the state pension system. Public employers, funded by taxpayers, pitch in another 11.32 percent. Police and firefighters pay a little higher percentage than other government workers.
Idaho last hiked public employee contribution rates in July 2013.
The retirement system’s poor fiscal showing over the past two years concerns pension expert Steven Greenhut.
Greenhut, the western region director for the R Street Institute and author of a book about public pension reform, said Idahoans should worry about PERSI’s poor performance.
“Defenders of the current system tell us not to worry because these low years often are followed by good-performing years,” Greenhut said Wednesday. “That remains to be seen. The public backs these pension debts, so low years should be of concern because we are the ones that have to pay any shortfall.”
Greenhut counts himself among the country-wide crowd that is calling for serious pension reform at all levels of government. He is not a fan of defined-benefit retirement arrangements, where taxpayers are forced to back political retirement promises.
“The public should be concerned about the way the system is designed and about long-term prospects,” Greenhut explained. “Higher pension debts mean cutbacks in services and could mean tax increases.”
This has already happened elsewhere. The Washington Post detailed the pension woes of San Jose, Calif., where the city has long promised “gold-plated” pensions and now skimps on services to meet funding obligations.
Idaho’s pension problems pale in comparison to those of many California or Chicago governments, but Greenhut suggests preventative reform could head off severe fiscal chaos.
“Why not just shift everyone to a 401(k) plan and let the employee rather than the taxpayer be responsible for the ups and downs of the market?” Greenhut asked.
IdahoReporter.com asked House Commerce and Human Resources Chair Stephen Hartgen, R-Twin Falls, for his thoughts on the pension woes. Hartgen declined to comment. He did say, “We will have plenty of time this winter to review [the pension board’s] decisions.”