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Belittled state pension fund shows investment returns dip in 2012

The Florida State Board of Administration, the investment manager of the state's multi-billion dollar pension fund, announced Wednesday that earnings have stalled for the state-run account that holds the retirement earnings of thousands of state and local government workers.

After two years in which the fund has had back-to-back earnings of 14 percent and 22 percent, the fund returned a .29 percent on investments in the year ending June 30, 2012 and ended the year with a net asset value of $122.7 billion that reflects payments of $5.9 billion last year to retirees and transfers.

Preliminary performance figures for the fiscal year ending June 30 "show the FRS Pension Plan beating its benchmark by 77 basis points while earning a positive .29% return,'' according to the board. "A basis point is equivalent to 1/100th of a percentage point."

“While we expect continued volatility, we are long-term investors and have positioned the portfolio to withstand short-term volatility in order to deliver the returns required to meet pension obligations.”  said Ash Williams, Executive Director and Chief Investment Officer for the SBA.

All this comes in light of constant criticism from Gov. Rick Scott who has made a point of proclaiming that the state's retirement fund is not sufficiently funded to meet its payment obligations to retirees. He signed legislation in 2011 to require members of the FRS to pay 3 percent of their salary into the fund and then used that $1.1 billion to fill gaps in the state general revenue fund. None of the additional 3 percent went into shoring up the bottom line of the pension fund and a judge in March rejected the change as unconstitutional.

"I want to make sure we fix the plan so individuals can actually rely on it,'' Scott said at the time. "Because today, you can't rely on that plan, it's not funded. So it's going to have a big impact on our counties, it has a big impact on our state budget. But it's clearly constitutional." PoliFact Florida ruled Scott's claims that the pension fund is not funded as false.
Williams said the plan has performed consistently over the last 20 years, achieving a  7.75% actuarial assumed rate of return.  "However, recent studies do not reject consideration of lowering the assumption to reflect changing market conditions at the next estimating conference to be held in later this year,'' he said. "It seems reasonable to review the return assumption in light of ongoing deleveraging and modest global economic growth.”
More from the FRST statement: Download 20120801_FRSPensionPlan2011-12PreliminaryReturnsModestbutPositive

The FRS Investment Plan, established in 2002 to provide Florida’s public employees with a portable, flexible alternative to the traditional defined benefit plan, also posted year-end gains in returns and participation.  During the fiscal year, 10,937 or 28.8% of newly hired employees elected to join the Investment Plan, and 6,443 Pension Plan members used their 2nd election to switch to the Investment Plan resulting in a record high 144,299 member accounts. 
Additionally, the Plan’s year-end assets of $7.138 billion were at a record-setting level, representing an increase of $401 million more than this time last year, while paying out $1.1 billion in benefits.  Investment Plan returns for the year were 1.07%, missing its benchmark by 10 basis points.  However, for the three, five year, and since-inception periods returns were above benchmark (48 bps for three years, 62 bps for five years, and 35 bps for since-inception).  The benchmark is based on the weighted average performance of various indices used to benchmark each investment option.