The retirement program utilized by the state of Idaho and most local governments may need more cash to prop up its fiscal health, despite a modest rebound in the last 45 days.
This week, Public Employee Retirement System of Idaho Investment Manager Bob Maynard told the agency’s oversight board that the pension fund is performing moderately well in fiscal year 2017, which began July 1.
“It’s been a great month and half,” Maynard said at the agency’s monthly board meeting at the PERSI Boise headquarters.
The general fund, which covers thousands of state workers, teachers, police, firefighters and other government workers across Idaho, has returned 3.4 percent on investments since July 1, but only 0.7 percent in August.
The modest 45-day good news was welcome after the pension system closed fiscal year 2016 with much lower-than-expected returns, the second year in a row the retirement program has failed to meet return-on-investment objectives.
PERSI Communication Manager Kelly Cross told IdahoReporter.com last month that the system 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. 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.
Even if the fund rebounds in a strong manner, taxpayers may be asked to shovel more cash to shore up the retirement program’s finances. This week, PERSI Executive Director Don Drum told the agency’s oversight board that a contribution-rate increase, which would come from government employers and their workers, proposal is being discussed.
Drum, who meets regularly with government entities, told the board he’s fielded questions about contribution-rate hikes, but his responses about the possible rate increase have been generally well-received.
“The rate increase proposal is minimal,” Drum reported, “and because of that, the employers are very supportive of what we’re doing.”
Cross confirmed that PERSI needs to examine a contribution-rate increase to follow state law. PERSI holds more than $15.3 billion in assets, but needs over $2.3 billion more, according to state numbers, to legally cover all its obligations.
PERSI believes the shortfall violates state code, which requires the retirement system to have an amortization rate, or a long-term obligation period, below 25 years. Cross confirmed this week, with a $2.3 billion gap, PERSI’s amortization rate is approximately 31.6 years.
The oversight board won’t make a final decision until its October meeting, but Cross said PERSI may ask for a 0.75 percent rate increase. Governments would pay 60 percent of that, and the employees would pick up the rest.
It’s not clear how much that would cost taxpayers.
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 slightly higher percentage than other government workers.
Idaho last hiked its public employee contribution rates in July 2013. That rate increase cost state and local governments more than $50 million in fiscal year 2014. As a result, Idaho schools paid about $7 million more in retirement costs that year.