Investments in the Arkansas Teachers Retirement System increased by about $1.2 billion to $21.2 billion last quarter as investment markets recovered during the period, an investment consultant told the system's board of directors Monday. .
The Teachers' Retirement System had a 7.1% return on investment in the quarter that ended Dec. 31, ranking among its peer public retirement systems nationwide, according to Katie Comstock of Aon Hewitt Investment Consulting. It was ranked in the top 41%.
At Monday's meeting, the Trustees increased the plan's target asset allocation to fixed income investments and decreased the plan's target allocation to the stock market, with the aim of taking advantage of rising interest rates and somewhat reducing the plan's financial risk. It was decided that.
The Teachers Retirement System is the state government's largest retirement system, with more than 100,000 active and retired members.
In the first six months of fiscal year 2024, the system posted a 4.8% return on investment, Comstock said. Fiscal year 2024 will begin on July 1, 2023 and end on June 30, 2024. The target return on investment for the system is 7.25% per year.
He said the system's investment gains in the quarter ended Dec. 31 more than offset the system's investment losses in the first quarter of fiscal 2024, which ended Sept. 30. In the first quarter of fiscal year 2024, investments in the system declined to a value of approximately 745 million yen, Aon Hewitt Investment Consulting said in a report to the system's board of trustees in December. It said that the increase was $10,000 to $19.9 billion.
The plan's governing board on Monday voted to reduce the target asset allocation to stock market investments from 53% to 48% and increase the target asset allocation to fixed income investments from 15% to 20%. The system's other target asset allocation is 15% in real assets such as real estate, timber, agriculture, and infrastructure investments. Private equity is 12%. 5% is opportunistic and alternative investments.
Aon Hewitt Investment Consulting officials said the trustees' approval on Monday of changes to the system's asset allocation goals means that about $1 billion of the system's assets will be shifted from the stock market to the bond market. This means a transition to .
The Board of Trustees on Monday voted to invest up to $800 million in the firm's Core Plus Bond strategy with fixed income investment management firm Baird Advisors (Milwaukee, Wis.). The remaining approximately $250 million will be placed in a bond index fund.
“The main driving force behind this incident was [increased allocation to bond investments] That means the returns you're getting from bonds are much improved,” said PJ Kelly of Aon Hewitt Investment Consulting.
A few years ago, the trustees lowered their target asset allocation for fixed income investments from 20% to 15%, because the system was “able to withstand higher levels of risk, and at the time, it was better to take that risk in equities.” This was to reflect the fact that he was being rewarded. The market, he said.
“In recent years, the risk-reward trade-off has become less attractive than it used to be,” Kelly said. “In other words, the returns you get from bonds are much higher.”
In the event of potential investment market turmoil, the system's increased bond investment allocation “kind of gives us a little more dry powder, which could work very well during stock market declines or other turmoil.” “It strengthens the influence of financial markets,” he told the trustees.
Increasing the system's investment allocation to bonds and decreasing its investment in the stock market reduces the system's expected return on investment from 7.76% to 7.66% per year, which is still higher than the system's target return on investment of 7.25%. says Kelly. He said.
Mark White, the system's executive director, said the interest rate environment is very different now, with rising interest rates and a strong stock market, but the system will increase its asset allocation to fixed income and reduce its asset allocation to equities. He said he recommended that. With so much uncertainty on top of geopolitical tensions and the presidential election, it makes sense to reduce financial risks to the system.
In other action Monday, the Trustees approved the election of Kelly Hamilton and Kelsey Bailey to the Board of Trustees for terms starting July 1, 2024 and running through June 30, 2030. Mr. Hamilton ran unopposed for the fourth position on the board, or as a certified member of the board. 4th Congressional District – Mr. Bailey ran unopposed for his 7th place on the Board, a position that does not require state certification.
In December, the board appointed Hamilton, an English teacher at Magnolia High School in Stamps, to fill a vacancy in Position 4 on the system's board of directors. She fills the vacancy on the board caused by the retirement of former Malvern Trustee Kathy Clayton, who served on the board from July 1, 2013 to November 1, 2013.
In September, the Board of Trustees appointed the Little Rock School District's assistant chief of finance and operations to fill the seventh vacancy on the board created by the resignation of Kelly Davis of Fort Smith, who retired in Arkansas, effective July 1. Mr. Bailey was appointed.
The Board of Trustees includes 11 elected members, as well as the State Treasurer, State Auditor, Banking Commissioner, and Secretary of the State Department of Education.
System actuary Gabriel said that as of June 30, the system had a total of $4.5 billion in unfunded liability, based on $25.5 billion in total debt and $21 billion in asset financing. It is 82% funded, which is the same as June 30, 2022.Lauder Smith & Company
The system's unfunded liability recovery period is expected to be 26 years as of June 30, Gabriel reported. The actuary compares the expected repayment period of the unfunded liability to a mortgage.
Employers in the system contribute 15% of their salaries to the system, and workers in the system who pay into the system contribute 7% of their salaries. In fiscal year 2023, the plan's employers contributed $503.4 million and the plan's members contributed $188.6 million, White said.
The Trustees voted Monday to set the employer contribution rate at 15% of salary and the employee contribution rate at 7% of salary for the 2025 fiscal year, which begins July 1, 2024.
As of June 30, the Teachers Retirement System included 68,249 active employees and 54,646 retirees who did not participate in the system's deferred retirement plan, according to Gabriel Roeder of Smith & Company. It was As of June 30, the plan had a total of 3,138 deferred retirement participants. ..
According to the actuary, as of June 30, the average age of the 68,249 working members of the system who are not participating in the deferred retirement system is 44 years old, the average length of service is 10.1 years, and the average salary is 45,897 yen per year. It was a dollar.
As of June 30, the plan's 3,138 deferred retirement participants had an average annual income of $70,134, the actuary reported.
The plan's 54,646 retired members had an average annual retirement benefit of $24,643 as of June 30, according to Gabriel Lauder Smith & Co.
According to Aon Hewitt Investment Consulting, investments in the system reached the following values as of Dec. 31 and generated the following investment returns in the previous quarter:
The amount invested in the stock market was $11.6 billion, and the return on investment was 11.7%.
Bond investment was $2.9 billion, with an investment return of 5.1%.
Private equity investment was $2.9 billion, with a return on investment of 0.8%.
Real estate investment was $1.5 billion, with an investment return of -1.8%.
$1 billion in opportunistic/alternative investments with a 3.2% return on investment.
Infrastructure investment was $479 million, with a return on investment of 0.4%.
Investments in timber were $339 million, with a return on investment of 0.3%.
Agricultural investment is 243 million percent, with an investment return of 0.1%.
The plan's return on investment averaged 9.7% per year over the past five years, ranking it in the top 3% of similar public pension plans nationwide, and in the top 3% over the past 10 years, averaging 8.1% per year. Ta. Comstock said it is the most important public pension plan in the system.