COLUMBIA — South Carolina's pension fund investments generated far less over the past year than hoped, but officials say there's no cause for alarm.
Preliminary numbers from the state's Retirement System Investment Commission show a return on investments of 0.6 percent for the fiscal year ending June 30, or less than $90 million. The state assumes a 7.5 percent annual return when calculating what it needs to keep the system solvent.
It's a huge drop-off from 2010-11, when the portfolio's net return was 18.3 percent, for a net increase of $3.3 billion.
Public Employee Benefit Authority director Bill Blume said the fund is starting its post-pension-reform management significantly in the hole, but the hope is that year-to-year fluctuations average out to hit the goal. He attributed the 2011-12 performance to the economy and poor market conditions.
“It's nothing to be alarmed about,” Blume told a retirement advisory panel on Thursday.
The fund is worth $25.3 billion, down from $26.2 billion last summer. That's because the system paid out $2 billion to retirees while it took in $1 billion from workers, said Adam Jordan, acting chief executive officer of the commission that invests the system's money. He acknowledged that a better return could have compensated.
“We count substantially on investment return,” said Blume, whose agency manages retirement benefits.
Last November, the Budget and Control Board reduced the state's assumed rate of return from 8 percent to 7.5 percent, saying that was more realistic. That's the rate legislators used to write the pension reform law designed to reduce long-term liability and make the system solvent for decades to come.
That law, signed in June, will reduce that $1 billion difference between what's coming in and going out.
It requires employees to contribute more of their income toward their retirement benefits – an additional 1.5 percentage points over three years, from 6.5 percent to 8 percent. The law kept employer contributions – the part funded by taxpayers – at the 10.6 percent rate that took effect in July, which was up one percentage point.
If the Legislature had left the system in status quo, contributions from agencies, schools, and local governments would have had to increase again in July 2013, to 12.2 percent, costing taxpayers an additional $147 million.
Jordan noted that 2011-12 was the third consecutive year that investments have ended in the positive, following huge losses amid the Great Recession.
“Investments gained money but did not reach 7.5 percent,” he said.
The portfolio's net return for 2009-10 was 13.8 percent, for a net increase of $1.9 billion. But after including 2008 and 2009 fiscal years, the five-year average return on investments was 1.46 percent.
Since 2005, when state law created the investment commission, investments have generated a total of $6.2 billion in returns.
The portfolio's final, audited numbers for 2011-12 will be released next month.
Pension funds across the country have fallen far short of their mark in the past year.
While officials blame market volatility, the South Carolina commission itself has been in upheaval over the past year, as infighting at an agency that had received little attention became front-page news.
The commission's only elected official, Treasurer Curtis Lofts, has been highly critical of the commission, and is particularly at odds with Chairman Reynolds Williams. Loftis threatened to stop writing checks on signed investment contracts unless his staff was given access to documents that were limited to the commission and its staff. Earlier this year, a Republican state senator tried unsuccessfully to remove Loftis from the board. Loftis tried unsuccessfully last month to force Williams to step aside. And former chief investment officer Bob Borden resigned last December amid clashes with Loftis.
The board voted unanimously last month to replace Borden with Hershel Harper, who had been interim CIO.