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January 2012 Policy Study, Number 12-1

   

Iowa's Privileged Class: Time for a Change!

    IPERS Performance Issues
   

 

The data reported by the Boston College Public Plans Database for 2009 shows the IPERS funded at 81 percent. The actuarial assets are listed at $21.1 billion, with liabilities of $26 billion.[60]

 

The Cavanaugh Macdonald accounting and consulting firm of Nebraska does IPERS’s annual investment and experience report. They have provided these services to IPERS for several years. The FY2011, or most current, report was issued on November 15, 2011. It revealed several interesting items.

 

Most importantly, the total Unfunded Actuarial Liabilities (UAL) as of June 30, 2011, were $5,682 million. While significant, this is less than the $5,765 million expected.

 

The IPERS “Regular” employee commitments, which make up the vast majority of employees, are currently funded at 79.2 percent and make up $5,565 million of the unfunded liability.

 

The two “Special” categories dealing with law enforcement and others are funded at the 87.9 percent and 94.2 percent levels, representing $110 million in unfunded liabilities.[61]

 

When combined, the IPERS pension liability is funded at an overall rate of 79.9 percent, slightly less than the recommended 80 percent level.

 

The total actuarial liability as of FY2011 is $28.26 billion, with an actuarial value of the assets at $22.58 billion.[62] The “actuarial” figures differ from the “cash value” figures, and are adjusted based on the various factors influencing real pension payments.

 

As the graph shows, the IPERS funding ratio has been on a fairly steep downward trend for the last ten years. This was especially impacted by the stock market losses of FY2008-2009.[63]

 

IPERS Funding Ratios

 

Total assets are valued at $22.8 billion, an increase of $3.2 billion from FY2010. Following the problematic market value returns (-16.3 percent) of the previous fiscal year, FY2010, the market-return rate jumped up to 19.91 percent for FY2011.[64]

 

IPERS Fund Performance

The experience of the “Great Recession” has negatively impacted returns and retirement accounts of virtually all plans, DB and DC, as well as personal IRA, 401(k), or 403(b) plans.

 

“Smoothing,” a process used by actuaries to balance the investment returns of long-term pension funds and adjust for wide market fluctuations, addresses some of the negative impacts and risks of the last few years, but not all.

 

The low returns of the past three, five, and ten years (-2.03 percent, 3.97 percent, and 3.98 percent) will continue to negatively impact the IPERS liability balances for the foreseeable future. This is especially true if the long-term economic recovery remains stalled as it has in the last six months.

 

"Smoothed" IPERS  Fund Performance

 

Though the Legislature increased the total contribution rate for IPERS to 14.45 percent beginning in FY2013, according to the projections by Cavanaugh Macdonald – based on historical market returns, previous employer/employee contributions, and current and projected benefit payouts – the total being contributed is still 0.32 percent short.[65]

 

Unless the Legislature acts again to either further increase the employee contributions, the employer contributions, or both, the projected shortfall in funding will have to be made up through increased investment returns. These returns are not controllable by the IPERS Board.

 

Another option is making reductions in pension payments, something which is controllable – by the Iowa Legislature.

   

 

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