An already bad week for State Treasurer Janet Cowell just got a little worse. On the heels of the Facebook fiasco, which raised several questions of dubious ethics, we now hear reports about the state pension fund’s lackluster performance for the 2011 fiscal year ended June 30.
North Carolina’s pension fund returned 2.21 percent for the fiscal year that ended June 30 and finished the year with $74.5 billion in assets, State Treasurer Janet Cowell’s office reported Friday.
In an unpredictable investment climate, a 2.2% return may sound decent to many. But this is important to note because the Treasurer’s office uses an annual 7.25% average return rate for its actuarial calculations. In other words, when figuring out if the pension fund has sufficient assets to cover its growing obligations over the next several years, they need to assume a return rate on the pension fund investments to help them determine the financial health of the pension plan.
Needless to say, the difference between the actual 2.2% return and the projected 7.25% return on a $70 billion-plus fund is quite substantial. By my quick back of the envelope calculations, the difference amounts to $3.7 billion.
Bottom line: the state pension fund now has $3.7 billion fewer dollars than the Treasurer’s office assumed it would have at this point.
A few weeks ago, I blogged about the dangers of using unrealistically optimistic return projections for a fund that already has accumulated a $2.8 billion unfunded liability. Even using the Treasurer office’s own rosy estimates, the taxpayer’s annual contribution to keep the pension fund afloat was estimated to increase from $811 million this year to more than $1 billion in five years. Barring some miraculous investment returns in the next few years, it looks as though taxpayers will be digging even deeper into our pockets to bail out the pension fund.