What follows was my letter to the editor of the Raleigh News & Observer that was published on page 2 of the Work & Money Section of Sunday's paper on 2/2/2014. My letter was a response to Andrew Silton's column from the prior Sunday's News & Observer.
Mr. Silton’s Jan. 26th column, “Keep politics out of pensions” was sparse on facts. I’d like to add some.
The last annual report issued by Treasurer Cowell shows the
state pension funding status to have fallen from 112.8% in 2000 to just 94%
now. That is to say, it is 6%
UNDER-funded. That’s roughly a $4
billion shortfall. But, Treasurer Cowell
knows the government pension accounting standards are flawed and about to
change. A Buck Consultants report says
the pension will be just 86% funded under the new rules. That’s 14% under-funded, or roughly $8 billion. However, the nation’s leading
expert on public pension funding, Stanford Professor Joshua Rauh, argues that
public pensions should calculate funding status in the manner corporate
pensions are required. Professor Rauh estimates North Carolina is $38 billion under-funded. That is roughly the
equivalent of two years of North Carolina tax receipts. Professor Rauh will lecture at
NC State University on April 16. I
suggest Mr. Silton and Treasurer Cowell both attend.
As of 6/30/13, the annualized 10-year investment performance of the state pension of 6.6% lagged the median public pension return of 7.4%. The
underperformance of 0.8% per year for 10 years for the $83 billion pension fund
translates into lost returns of $6 billion.
And, that is the cost of not being merely average. Plus, the average pension fund underperformed a simple portfolio of index mutual funds.
The primary cause of the state pension’s poor investment
performance
