Over Past 10 Years, Hawaii Pension Investments At Bottom of Pack
01/25/2012
Nanea Kalani/Civil Beat
A recent report shows that Hawaii's public pension fund ranked at the bottom among comparable funds for its investment returns over the past decade.
The report, issued by Northern Trust, compared 12 funds with investments of more than $1 billion for the 10-year period ending Sept. 30, 2011. Northern Trust is the so-called bank custodian for the Hawaii Employees' Retirement System's securities, safekeeping its assets and tracking the plan's performance. It compared Hawaii's performance with that of 11 other client funds it handled over the same 10 years.
The report shows that the average annual percentage return for Hawaii's fund over the past 10 years was 5.44 percent. That's critical to the health of the fund because until last year, the plan was based on earning investment returns of 8 percent annually. The target was lowered last session by lawmakers to 7.75 percent for the financial year ending June 30, 2011.
Meeting that target would mean the system would be adequately funded over 30 years. Any gap between earnings and contributions would have to be made up by employees and taxpayers.
Missing the 7.75 return rate translated into the system being more than $3 billion below target over the 10 years, according to Rod June, chief investment officer for the ERS. Today, that would break down to about $161 million for each percentage point the pension system misses its target in a single year, he said.
The retirement system's board chairman, Colbert Matsumoto, acknowledged that the fund's performance has not been satisfactory, but stressed that the trustees look at several indicators to gauge the fund's health.
"Our performance over the 10-year period is disappointing," he told Civil Beat in an interview. "The trustees periodically have to figure out the right mix to allocate to different assets to best get us to that absolute target — taking into account risk, return and liquidity."
The board of trustees is charged with safeguarding investment assets and investing funds to finance promised benefits for state and county employees.
