2010 Strong Investment Earnings

2010 Strong Investment Earnings
2010 Strong Investment Earnings

But Must Tackle Unfunded Liability

Continuing its climb from the abyss of Year 2008 when it lost 29% of its value, the Commonwealth’s pension fund displayed an encouraging investment return of 13.56% for Year 2010.

This followed earnings of 17.46% for Year 2009 and pushed the January 1st value of the fund, known as the Pension Reserves Investment Trust (PRIT) Fund, to $48.3 billion. While still short of the Fund’s peak value of $53.7 billion at the end of ’07, it was uplifting news for the State and Teachers’ Retirement

Systems along with the majority of local retirement systems, which have a strong stake in the PRIT Fund.
Global equities (stocks), an asset category which comprises 50% of the PRIT Fund’s asset allocation, returned 15.28% for the year, largely boosted by the month of December which saw an earnings increase of 7.34%.

Despite the well-publicized decline in the housing market, PRIT’s real estate allocation of almost $4 billion earned a robust 13.46% last year. Most of PRIT’s real estate fund is encompassed in a real estate investment trust (REAT), a wide range of commercial real estate, which has been a winner (10%) over the past 10 years.

It must be remembered, however, that despite the double-digit investment gains of the past two years, the Commonwealth’s unfunded pension liability is $19 billion. This liability is the result of the state shifting some of its pension funds’ investment earnings to meet annual budget shortages over a period of time. This same practice has taken place within local budgets to the detriment of many well-run municipal retirement systems.

In order to meet its Year 2025 deadline of fully funding its huge pension liability, the Commonwealth is now embarking on an extension of the full funded date to Year 2040. In legislation filed by Governor Patrick, this year’s payment (Fiscal 2012) will be $1.478 billion, and $1.552 billion in Fiscal 2013. These figures are some $500 million less than the 2025 schedule would have called for over the next few years – truly budget busters in that sense.

“From the viewpoint of our Association, there has to be room in this funding schedule for an increase in the restrictive COLA base for state and teacher retirees within the new schedule.

“The Governor and Legislature gave the OK for local retirement systems to accommodate such an increase in their funding schedules – Legislation which we strongly backed. Members of the state’s two largest retirement systems need and deserve the same consideration,” said Association President Ralph White.