Tar Heel State Treasurer Seeks Pension Investment Diversification

May 29, 2009 (PLANSPONSOR.com) - The North Carolina House approved a measure allowing Treasurer Janet Cowell to expand the state's lists of approved pension investments, which Cowell claims will help minimize the chance of a $1.3-billion funding gap.

An Associated Press news report said House members voted 64 to 50 to allow the state fund to   branch into timberland, securities rated below investment grade, commodities, and Federal Reserve-sponsored securities backed by auto loans or commercial real estate, with up to an additional 10% of assets.State law currently permits the Treasurer to put up to 5% of pension assets into hedge funds and other private equities, and up to 10% into real estate.

Next week the bill will head back to the Senate, which must agree to changes made in the House.

According to the Associated Press, Cowell’s office is expected to earn an annual 7.25% return on investments for the pension fund, but the global recession led to a $17 billion loss in asset value in 2008, followed by a further $4 billion decline in this year’s first quarter.

The news report said Cowell’s office projects that under current constraints on investments, returns will reach less than 7% percent. That would mean a $1.3-billion funding gap in the next five fiscal years, which Cowell’s office said could be wiped out with the greater asset allocation flexibility.

“They’re saying this is what we need … to even attempt to get close to hitting our target,” said Representative Pryor Gibson, a bill supporter, according to the Associated Press. “We’re better off than any other state around us, but we’re in bad trouble in our retirement plan, not because of anything we’ve done … but because market forces have made our investment — our traditional, secure, ironclad investment group — worth billions and billions less.”

The retirement funds covering 820,000 state and local government employees, teachers, emergency responders and retirees totaled about $56 billion in assets on March 31, 2009. The state pays retirees about $4 billion annually, according to the report.