IA: Police pension fund loses $7.3 million in investments1/10/2013
DES MOINES – Iowa’s pension fund for police officers lost $7.3 million in investment returns last fiscal year, a newly released report from the state auditor’s office shows.
The Peace Officers’ Retirement, Accident and Disability pension system, which is partially propped up by taxpayer dollars, has an unfunded liability of $187.3 million – a 70 percent increase from five years ago – and is only funded at 61 percent, according to the report. That means it lacks the dollars to fully cover the pensions it has promised the workers it covers.
The returns for fiscal year 2012, which ended June 30, come on the heels of a year in which pension fund saw a 24 percent return on investment.
“The audit report gives you a snapshot in time,” said Stefanie Devin, deputy state treasurer. “The stock market was really down at the end of June, which is going to make your return look really low. It’s more important to look at the longer-term returns.”
The fund paid pensions to 549 retired police officers and had another 41 who were terminated but had deferred benefits. Another 570 working officers are vested in the program, meaning they will receive benefits once they retire.
To qualify, members must have 22 years of service and be at least 55 years old. They receive just more than 60 percent of their average final salary, plus an additional almost 3 percent for each year worked beyond 22 years. Their benefit cannot exceed 88 percent of their final average salary, a number based on the average of their three highest annual wages, according to Iowa law.
Iowa lawmakers in recent years tried to strengthen the pension system as its unfunded liability continued to grow to what some say is an unsustainable amount. The changes called for workers to increase their contributions from 9.35 percent in fiscal year 2011 to 11.35 percent in fiscal year 2014.
The state and its taxpayers, however, will see a much larger jump in their contribution rates. They contributed 25 percent for the plan last fiscal year and will provide an additional 2 percent each year until reaching 37 percent in 2017. Additionally, the state will begin kicking in an additional $5 million a year to fund the pension system until it is fully solvent, something Devin said is expected to happen in 30 years.
However, those estimates are based on an annual 8-percent return on investment, a figure some call unrealistic.
“That’s definitely not a conservative projection,” said Richard Vohs, president of the Iowa Taxpayers Association. “I know a lot of investments do make assumptions at that level. I don’t personally for myself or my own retirement projections.”
Vohs and Devin did not specify a reasonable rate of return on investment when asked.
Those sorts of assumptions have helped fuel severe problems with pension systems in states such as California and Illinois. Their funds “are running into the red and no one can afford to make them up. And that has led to default in a very few instances,” Vohs said.
But Iowa far from being in dire straits, he said.
“I’m not aware of any pension system in Iowa that is in trouble or projected to be in trouble. Both parties recognize there are potential problems and have developed a plan to address them.”