Despite economic upheaval, massive job losses, business shutdowns and uncertainty in the investment market throughout 2020 due to the COVID-19 pandemic, the state pension plan achieved a record $114.9 billion valuation entering 2021.
The $114.9 billion estimated market value on Dec. 31 – even after paying out more than $6.5 billion in gross benefits — showed a $9.3 billion gain over the Dec. 31, 2019, value of $105.6 billion. The earnings were $20.7 billion above the 2018 year-end figure of $94.2 billion. The 2020 figures could change slightly, depending on official results from the monthly auditing process that should be concluded by the end of this month.
For the 2020 calendar year the estimated return on investment was 11%, exceeding the 7% actuarial rate of return target. The pension plan, formally known as the North Carolina Retirement Systems, has now exceeded the actuarial rate of return three of the past four years while maintaining a conservative risk profile. Return numbers were 13.53% in 2017, and 14.88% in 2019. Returns showed a –1.47% return in 2018 due to major stock market indexes posting their worst annual performances in a decade.
For the first six months of the fiscal year that started July 1, 2020, the pension plan earned an estimated 11.6% rate of return.
By exceeding the investment return goal in 2020 an additional $3 billion is available to help offset $11.5 billion in unfunded liabilities in the Teachers’ and State Employees’ Retirement System. It will add about $1 billion above expectations to help offset $3.3 billion of unfunded liabilities in the Local Governmental Employees’ Retirement System. Those higher earnings are critical as the interest on the unfunded debt continues to accumulate.
Although the state pension plan is among a handful of the best funded in the nation, the most recent data available shows the Teachers’ and State Employees’ Retirement System has an $11.5 billion unfunded liability, and the Local Governmental Employees’ Retirement System is underfunded by $3.3 billion.
“The largeness and strength of the state pension plan and staying the course on a decades-long conservative management strategy instead of panicking and chasing risky get-rich-quick investment schemes led to a phenomenal year for the state employees, retirees and taxpayers who are stakeholders in the pension plan,” said state Treasurer Dale R. Folwell, CPA.
The plan’s performance is all the more remarkable when considering its value dropped to an estimated $93.6 billion on March 23, 2020, at the height of the pandemic scare, but rebounded by nearly 23% to record-setting numbers just nine months later, Treasurer Folwell said.
“The credit for that turnaround goes to Christopher Morris and Jeff Smith, the co-CIOs of our Investment Management Division, and their oversight of one of the most seasoned teams in the nation,” Treasurer Folwell said. “Our ability to grow an already secure pension plan that is the 26th largest pool of public money in the world not only puts current and future retirees at ease, but ensures that North Carolina’s coveted Triple-A bond rating is not jeopardized.”
Treasurer Folwell added that bond rating from all three national rating agencies enables the state and local governments to obtain low interest rates when taking on debt to fund capital projects, thus saving taxpayers’ money.
“We are in the check delivery business, sending out more than $551 million every month to more than 336,000 retirees who can count on us to keep the money coming,” Treasurer Folwell said.
Feature photo: Dale Folwell.