As fiscal year 2012 drew to a close on June 30 for the state of Massachusetts, the good news was that just 8/10 of a percent was lost on the pension fund. The bad news, depending on your perspective, is that there was no gain as well, leaving the fund where it started twelve months ago.
The state pension fund of Massachusetts, with nearly $50 billion in assets, posted losses on stocks and natural resources but showed gains on bonds and other investments. The net zero loss/gain for the Pension Reserves Investment Trust, which invests on behalf of state workers and teachers, was far below the 8.25 percent rate the fund set as its targeted return back in July 2011.
The Massachusetts fund's global equities portfolio, which comprises 43 percent of the fund's assets, lost 5.88 percent for the year. Specifically, a 4 percent fund allocation to timber and other natural resources dropped 7.95 percent.
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By contrast, core fixed income instruments gained 8.10 percent and value-added fixed income strategies gained 3.71 percent. Together, however, the two categories made up less than one-quarter of the fund's assets. Also on the plus side, private equity investments gained 11.39 percent and real estate investments rose 9.95 percent.
The weak overall returns of large, public pension funds this year has led some to call for lowering the assumed future returns used to calculate the funds' potential liabilities.
In Massachusetts, Treasurer Steve Grossman has called for the fund to lower its expected annual return forecast to 8 percent from the 8.25 percent rate currently targeted. Over the past 10 years, the fund has averaged a 7.25 percent annual gain.
The Massachusetts fund was $19 billion, or 29 percent, underfunded as of Jan. 1, 2011, according to the fund's most recent annual report.
Other large state funds have posted similar no loss/no gain returns for the latest fiscal year, including the giant California Public Employees' Retirement System, which had a negligible one-percent gain.
The Governmental Accounting Standards Board, the federal accounting organization for public finance, has begun requiring states and cities with large pension funding gaps to lower the projected rates of return on their retirement investments.
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