Special to Iredell Free News
RALEIGH — State Treasurer Dale R. Folwell and the North Carolina Retirement Systems Division announced the results of a “stress test” that gave high marks to the state pension plans. The test was conducted by The Pew Charitable Trusts and presented to the Teachers’ and State Employees’ Retirement System and Local Governmental Employees’ Retirement System Boards of Trustees during a recent meeting.
Compared to other states they tested, North Carolina’s state pension fund is well-positioned to maintain solvency during tough economic times, Pew researchers said.
Pew is an independent, nonprofit and nonpartisan research and policy organization that seeks to improve public policy, inform the public, and invigorate public life. The organization’s well-respected research spans many aspects of public policy and is often noted for insightful research of public sector retirement systems.
Stress testing is a simulation technique that forecasts the potential impact of investment risk and contribution risk on pension balances and government budgets. It analyzes the need for higher state pension appropriations to offset lower investment returns during an economic downturn, and how that might impact funding for core government services such as schools, public safety, and infrastructure.
Pew found that even in downside scenarios the North Carolina pension system’s current funding policy positions it well to withstand economic headwinds. These policies include the North Carolina General Assembly’s full funding of the Actuarially Determined Employer Contribution and providing millions more in additional funds through the Employer Contribution Rate Stabilization Policy adopted by the Board of Trustees.
However, the Pew researchers found that in a severe recession scenario, the state would need to commit a larger share of its revenue to pension contributions. Otherwise, pension funding levels would decline.
“I want to thank Pew for their insightful analysis of North Carolina’s pension system,” Folwell said. “It showed that at the end of the day, we’re one of the best funded pensions in the country. However, we have to continue to save and make money as well as have a realistic expectation that future challenges remain. This includes enforcing laws that prevent money from leaving the system, and supporting additional legislation that reduces complexity and preserves the benefit for present and future public sector employees.”
Folwell noted that the pension system has not made its assumed rate of return on average in the last 20 years and will have less than a 50 percent chance of achieving it for the next 20 years. To have a more realistic expectation of returns, the Boards of Trustees lowered the interest rate assumption from 7.25 percent to 7.20 percent in 2017, and then to 7 in 2018.
The North Carolina Retirement Systems, the formal name for the Fund, is the ninth largest public pension fund in the country and is currently valued at more than $100 billion. It provides retirement benefits and savings for more than 950,000 North Carolinians, including teachers, state employees, local governments, firefighters, police officers and other public workers.
For more information go to https://www.myncretirement.com/