(The Center Square) – With minimal investments in public stock, the North Carolina treasurer's office predicts the state's pension fund will survive the COVID-19 economic downturn better than other states.
Treasurer's office spokesman Dan Way said one-third of the state's pension portfolio is invested in public stocks.
"That conservative strategy might not produce returns as high as some plans that swing for the fences with riskier investments when the market is strong," Way said in an email. "But our plan does not experience losses as severe as those of other plans that are gambling with taxpayer funds."
The pension fund assets were valued at $105.6 billion at the end of 2019, a state treasurer's quarterly report said.
According to an October 2019 report submitted to the North Carolina Teachers' and State Employees' Retirement System board of trustees, the system had 86 percent of the funding on hand it needed to service the hundreds of thousands of state workers that rely on it for retirement, resulting in an unfunded liability of $11.1 billion at the end of 2018.
The system's unfunded liability at the end of 2017 was $9.6 billion, when it was 88 percent funded.
In an October 2019 stress test of the system, the Pew Charitable Trust found the system was "well-positioned" to maintain solvency during tough economic times. North Carolina's system ranked in the top 10 for its funding level among other states, according to Pew researchers. The average funded status is 70 percent.
Joe Coletti, a senior fellow at the free-market think tank John Locke Foundation, has a different outlook on the system's future.
During the 2008 economic recession, the fund saw a major downturn. The pension system went from being $2.5 billion over funded to $2.4 billion underfunded, Colletti said.
"It would have been worse based on market value instead of actuarial value, which spreads gains and losses over five years," said Coletti, an economic research fellow. "This has the potential to be much worse since the pension system is already underfunded."
Way is confident in the pension plan's strength despite state and national economic fallout caused by the response to the COVID-19 pandemic. The outbreak has caused record-breaking declines in the stock market and increases in unemployment.
"North Carolina's pension plan is in a very strong posture to weather market downturns," he said.
To recover its assets, Locke Foundation researchers have recommended the state lower its targeted rate of return; change the discount rate, which helps determine the present value of pension liabilities; and offer a multi-tiered system.
The pension system's current targeted return rate of 7 percent most likely will not meet the mark over the next two decades, Locke Foundation research shows. Forecasts show a less than 40 percent chance of achieving the current rate.
Coletti said he expects annual contributions to increase while this year's losses work their way through the actuarial process, but he said it will be hard to assess what damage will be done to markets right now as COVID-19 continues to spread.
As of March, 292,060 retired state and local government employees receive benefits from the state's pension system, according to the treasurer's office. The system distributes $541 million a month.