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Alabama State Retirement Fund Plunges With Market; officials say it remains solid

Investments that are a key source of funding for Alabama’s employee retirement system have lost ground in the collapse of financial markets this year, but officials say the pension fund is strong.

The ERS Board of Control heard a presentation on the latest numbers at its quarterly meeting in Montgomery on Tuesday morning.

Retirement Systems of Alabama CEO David Bronner also spoke more broadly about the global economy and said he couldn’t remember when it faced such a multitude of challenges.

The ERS, with $15 billion in assets, served more than 139,000 members last year, including about 52,000 active and retired state employees and members of local government entities. Until April, the ERS investment rate of return was minus 5% for this fiscal year, which began on October 1.

Bronner, who has run the state pension program since 1973, said participants shouldn’t worry because they have a defined-benefit plan, meaning it doesn’t depend on investment earnings. Additionally, the fund’s long-term performance has been strong, Bronner noted, including a 22% return last year. The 9% rate of return over the past 10 years puts the ERS in the top third of comparable public pension plans, according to financial firm State Street.

Domestic inventory for the ERS is down about 4% for the year, while overall inventory is down 5%. Domestic equities account for the largest portion of ERS investments. Fixed income investments, or bonds, are down 10%.

“Normally history will show you that if the stock market sells off a bit, the bond market does pretty well,” said Bronner, who has led RSA since 1973. “In this situation they both get killed “I mean you’re hurting yourself. How long will it last? Will it change? Well, of course it will. But when? That’s the question. The stock market and the bond markets are affected by the craziest confluence of different things I have ever seen.

Among those factors are soaring fuel prices and the war in Ukraine and its crippling effect on grain supplies that are a vital food source for countries in Europe and Africa, Bronner said. Drought in Africa is worsening food shortages, he said.

Bronner led RSA through previous economic downturns, such as a stock market crash in 1987, the financial fallout after the September 11 terrorist attacks and the Great Recession from 2007 to 2009. The current situation is different, he said.

“It’s unusual from the perspective of having a fuel crisis, thrown on a food crisis, thrown on inflation,” Bronner said. “All of that is working against us right now. It could spin just as fast. And when we say fast, we don’t mean tomorrow, or the next day, or next week. But certainly in a few months.

“You just have to settle down. If we could settle the war, that would help enormously. It would help the food crisis, and it would probably also help with gas prices and things like that.

State Treasurer Young Boozer, who serves on the ERS board, said global issues matter, but expressed confidence in the health of state pension funds.

“The markets are in turmoil and they have been for several months,” Boozer said. “And Dr. Bronner talked about the causes of those. And they’re here, they’re active, and we’re going to be dealing with these things for months.

“How will this affect the fund, the RSA and plan participants? The plan is in good shape. We are well funded. We are well positioned. And if you look at our portfolios, we have excellent asset allocation. And I expect it’s just a turbulent time that we’re going to go through and settle down. And I think we’re going to be in good shape going forward.

The ERS asset allocation, at the end of April:

  • National stocks: 52%.
  • International Equities: 14.4%.
  • Fixed income investments: 10.7%.
  • Private placement and private equity: 7.5%.
  • Real estate: 9.8%.
  • Cash: 5.7%.

RSA also runs the Teachers Retirement System, a larger fund with $30 billion in assets. Quarterly TRS figures were released at a board meeting last week. They also showed a 5% loss on investments.

But last year, TRS investments generated an annualized return of 22.6%.

Overall, RSA manages 24 funds with total assets of approximately $52 billion at the end of the last financial year.

Bronner said RSA’s investments other than stocks and bonds are generally doing well. These include the Robert Trent Jones Golf Trail, nine resorts across the state, and 55 Water, New York’s tallest office building.

“We’re making the most money we’ve ever made on hotels today,” Bronner said. “The same with the Robert Trent Jones Trail. We had the best year we’ve ever had last year (on the RTJ) and this year so far is better than last year.

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