Government pension fund loses on investments last fiscal year

By Cy Ryan

Wednesday, Aug. 20, 2008 | 12:09 p.m.

CARSON CITY – The 140,000 member government pension system in Nevada lost money on its investments last fiscal year, but it performed better than most public retirement systems.

The state Public Employees’ Retirement System suffered losses on its investments in U.S. and international stocks and real estate investment trusts.

There was “less damage to the Nevada fund than suffered by other states,” says Paul Troup, executive vice president of Callan Associates of Atlanta, Ga., the investment counselor to the state retirement system. “The patient is healthy.”

Troup and Ken Lambert, the system’s investment officer, said the state should continue on its present conservative investment strategy instead of making wholesale changes.

The $22 billion invested in fiscal 2008 suffered a 3.4 percent decline.

The $4.4 million in the retirement system for legislators lost 4.3 percent and the $37.7 million judicial fund also suffered a 4.3 percent decline. The system manages those separate retirement plans.

Lambert said that “after four consecutive years of positive returns, stocks succumbed to a weakening economy and severe credit market crisis and posted negative results.” Forty percent of the $22 billion was invested in U.S. stocks, 15 percent in foreign stocks, 30 percent in U.S. bonds, 5 percent in foreign bonds and 10 percent in private investments, including real estate.

The system is composed of employees of counties, cities, school districts and the state. About 37,000 of the 140,000 are retired and the average pension check is about $2,200 a month but rises to $3,500 for police officers and firefighters, said Dana Bilyeu, the chief executive officer for the system.

Both government and employees contribute monthly to the system. Whether those contributions need to be increased in the future won’t be known until November. And if so, the proposal would be presented to the 2009 Legislature.

The system has a goal of earning an 8 percent return on its investments and it has achieved that in 17 of the last 24 years. The average return for the 24 years is 10.2 percent.

In the past fiscal year, the system earned a 6.3 percent return on its investment in U.S. bonds and 18.3 percent on international bonds.

Board member Betsy Fretwell, who is deputy city manager in Las Vegas, said the investment in U.S. Bonds doesn’t produce the 8 percent sought by the system. She suggested the system might look for another investment to provide a better return.

Troup said it was “hard to make money on fixed income” and he said other options will have to be studied in the future.

Lambert told the board that the system has generated a similar rate of return to other government pension plans with less risk in the past 10 years. He suggested the state continue its “conservative” investment posture that doesn’t earn as much in the strong economic years but doesn’t suffer when there’s a downturn.

Board member Charles Silvestri of Las Vegas questioned the benefits of making riskier investments. Troup said those investments are volatile and that might mean higher monthly contribution rates by governments and employees.

Bilyeu said the system would be “fully funded” by the year 2034, meaning it would have enough money to pay all the retirees if the plan was closed.