AK TRS Struggles to Keep Up With State Investment Requirement

July 19, 2005 (PLANSPONSOR.com) - Arkansas Teacher Retirement System trustees are looking for more and better ways to meet the state's requirement that the fund invest between 5% and 10% of its $8.7 billion in assets in the state.

According to the Arkansas Democrat Gazette, as the fund’s overall assets have grown and the fund has sold some of its Arkansas property, the level of assets invested in the state has dropped to around 3%.

David Malone, the retirement system’s executive director, suggested the trustees establish a set of guidelines for how to invest in the state.   He also suggested hiring an out-of-state real estate consultant to manage Arkansas property investment similar to the way the system’s equity-fund managers handle stocks, according to the Gazette.   Malone said the consultant would be required to meet investment growth requirements just like any other fund manager.

In addition, Malone suggested guidelines be set for minimum rates of interest on Arkansas’ banks certificates of deposits and when to invest in mortgage loans.   The Gazette reports that since 2003 the system has not invested in bank’s certificates or mortgage loans because of interest rates.   The system has also moved to sell two of its investment properties.

The system, which has 65,000 active members and 25,000 retired members, has an 8% return goal to meet its obligations, the newspaper said.   Malone feels setting a minimum rate to decide when to invest in certificates of deposit would help the system defend itself when it falls below the state’s investment requirement.

Malone is concerned that turning to real estate to meet the state’s requirement could result in the system owning too much state property, the Gazette reports.   Malone feels if the state counted the stock the system owns in companies that have more than 1,000 Arkansans on their payrolls – about $66 million worth – that would help the system meet the statutory requirements.