(The Center Square) – Tennessee’s public-pension system has lost slightly more than 5 percent of its overall value since the end of the last fiscal year, primarily because of the response to COVID-19’s effect on the economy, according to the Tennessee Department of Treasury.
Despite the losses, the impact on those receiving pensions likely will be minimal because Tennessee's system is well-funded, Shelli King, director of communications at the Department of Treasury, told The Center Square in an email.
At the close of fiscal year 2019, the Tennessee Consolidated Retirement System was valued at $52.1 billion. As of April 1, the value sits around $49.1 billion, according to Treasury estimates.
The first quarter of 2020 might be the worst quarter in the system's last 32 years, King said. Despite the S&P Index falling nearly 20 percent for the quarter, King said the department estimates its overall investment portfolio decreased by about only 10.5 percent.
King said the system has a diversified investment portfolio and is subject to investment markets. She said the fund is invested on a long horizon and short-term losses are smoothed over time.
Tennessee also funds its pension system more than most other states. As of 2017, Tennessee was one of eight states that have at least 90 percent of its pension liabilities funded, according to Pew. Twenty states have less than two-thirds of their pension liabilities funded.
“Since 1975, every governor has budgeted and every General Assembly has appropriated sufficient money to fund the requirements set by the actuary and board of trustees,” King said. “Some states will provide pension improvements but not fund those pension benefits, or in tough times, not include funding in the budget for the actuarially required amount for the year.
"The FY21 budget approved by the General Assembly in March shows the continued commitment Tennessee has to funding the retirement of its teachers and public employees,” Kind said.
Fund losses could require increased contribution rates, King said, but the state’s funding ratio cushions the impact so any increases will be at a manageable level.
Justin Owen, CEO of the Beacon Center of Tennessee, agreed that the pension system is in good shape to withstand the economic difficulties brought on by COVID-19. The Beacon Center is a free-market think tank.
“Our state pension system should be fine because it is both well-funded and provides a defined contribution option for newer state employees,” Owen said. “This policy change was made a few years ago to minimize long-term burdens on taxpayers while giving those state employees more control over their retirement.”
However, Owen did said he has two concerns. First, local pensions, especially in Memphis and Nashville, are less stable. Second, if more reckless states seek federal bailouts for a bankrupted pension system, Tennessee taxpayers could be on the hook for broken promises from politicians in other states.
The Tennessee Consolidated Retirement System is part of the state's RetireReadyTN retirement program. It is run by the Tennessee Department of Treasury.