No 'exotic' investments for PERS, official says


CARSON CITY -- Unlike in many other states, the Public Employee Retirement System here is not making high-risk "exotic" investments in an attempt to recoup what it lost when the stock market hit its bottom in March 2009, the system's investment officer said last week.

Ken Lambert said PERS for the past four years has invested 40 percent of its funds in U.S. stock, 15 percent in foreign stocks, 35 percent in bonds and 10 percent in real estate and other investments.

"Our investment strategy is unchanged and has been unchanged," Lambert said Tuesday. "We don't invest in hedge funds. We don't invest in exotic things."

He was responding to reports by the New York Times and a host of television financial advisers who this week said state pension funds around the country are looking to riskier investments to recoup their stock market losses quickly and retain their ability to make payments to retirees.

Lambert acknowledged he has learned about the bizarre investments that other states are making, but Nevada has not and will not take those steps.

The Nevada retirement system has assets of about $22 billion. Its members include about 104,000 schoolteachers, state workers and other public employees and about 40,000 retired public employees.

Lambert's contention that PERS is playing it safe when it comes to investments was confirmed by Geoffery Lawrence, a fiscal analyst for the Nevada Policy Research Institute. Lawrence said he does not think PERS is making risky investments to reduce its liabilities.

But that doesn't mean Lawrence thinks PERS is facing a sound financial future. He said the retirement system is headed for a time when it won't be able to continue to give full checks to the state's retirees.

As of June 30, Nevada had 72.5 percent of the amount of money it will need to cover all expected future payments to its retirees.

"The longer they put off reform, the bigger the problem eventually will be," said Lawrence, who has written on the retirement system's liabilities for NPRI, a Las Vegas think tank. His reports can be found on NPRI.org.

He said PERS as of June 30 was $9.1 billion short of the money it will need to cover all future benefits, and that is nearly four times the liability it faced 10 years ago.

Lawrence said PERS needs to change from a defined-benefit system to a defined-contribution system.

Under a defined-benefit plan, commonly referred to as a pension plan, an employer commits to paying its employees specific benefits for life beginning at their retirement.

Under a defined-contribution plan, a certain amount or percentage of money is set aside each year by an employer for the benefit of the employees, and the employees use the money as they see fit after retirement. What they receive in contributions depends on the employer's ability to pay.

Lawrence acknowledged that if the Legislature tried to reduce benefits for current PERS participants, lawsuits would follow and the state could lose.

At a minimum, Lawrence said new employees should be placed under a defined-contribution system, but he doubts that will be implemented at the 2011 Legislature.

In a report last month, the Pew Center on the States said it had "serious concerns" about PERS' ability to make future payments.

The report found that only four states today are fully funded to make all future payments, compared with more than half of them in the year 2000.

Lambert said PERS investments have gained 16 percent since June 30, $3.3 billion. Its assets now are just shy of the record $22.5 billion set before the market fell.

The 72.5 percent PERS liability percentage was based on June 30 and is higher today, he said.

With the continued recovery of the economy and stock market gains, Lambert expects the state pension plan will move more toward being fully funded.

There are two reasons why Nevada and other state pension plans have fallen in the 2000s: the 9/11 terrorist attacks and the stock market collapse, he said.

Largely because of these "two terrible events," PERS investments averaged just a 3.8 percent annual return over the 10 years ending December 2008, he said.

But over the past 25 years, the system has averaged a 9.4 percent annual return, above its 8 percent goal.

"This has been a rough decade," he said. "But we feel our approach is solid, and we feel American innovation will prevail. We feel confident in our strategy and in America."

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.

 

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