The Arkansas Public Employees Retirement System’s investments increased in value by $285 million to $8.09 billion during the last quarter, based largely on its domestic and international stock market holdings, the system’s trustees learned Wednesday.
The system’s investment return is 4.6 percent in the quarter that ended in March, ranking it in the top 36 percent of public pension systems, and the return is 11.03 percent in the year that ended March 31, ranking it in the top 50 percent of systems, according to a report from the system’s Chicago-based investment consultant Callan Associates.
The system’s return averaged 8.42 percent a year over the past five years, ranking it in the top 23 percent of such systems, and 5.57 percent a year over the past 10 years, ranking it in the top 42 percent of systems, Callan reported.
The trustees subsequently voted to reduce the projected annual return from 7.5 percent to 7.15 percent for one year for the June 30, 2017, actuarial valuation, based on advice from an actuary who said investment consultants expect reduced investment returns. That one-year reduction will allow trustees to study projected increased costs to state and local governments by further drops in the projected return.
As a cost-saving option, the trustees could ask the Legislature to enact legislation to allow the system to grant cost-of-living adjustments for retirees to the lesser of 3 percent or the consumer price index each year, said system Director Gail Stone. Retirees now receive a 3 percent cost-of-living adjustment each year.
“We’re going to have to have more information,” said trustee Steve Faris, who is one of three newly appointed trustees on the nine-member board.
“The General Assembly is going to be more involved and the people that we represent on this board need an idea of what’s going on. Things are going to be happening quickly,” said Faris, a former Democratic state lawmaker who lives outside Hot Springs.
The trustees decided to reduce the projected return to 7.15 percent for a year after Mita Drazilov of the system’s actuarial firm Gabriel, Roeder, Smith & Co. of Southfield, Mich., said the firm would prefer the projected return be lowered from 7.5 percent to 6.5 percent. The official also presented options for lowering the projected return to 6.75 percent or 7 percent.
A projected return of 6.5 percent a year could increase the rate charged to state and local governments to up to 19.07 percent or 21.45 percent based on certain assumptions, Drazilov said. In November, the trustees increased the rate charged to state and local governments from 14.5 percent of their payrolls to 14.75 percent, effective June 30 of this year, in a move projected to raise about $4 million more a year.
Wednesday, the trustees initially decided to delay a decision to lower the projected return, but then approved an option presented by Stone to reduce the projected return to 7.15 percent.