from the December 5, 2008 Des Moines RegisterEDITORIAL NOTE: Brad Hudson, our representative to the IPERs Board, briefed us at the December 5-6 ISEA Executive Board meeting. Mr. Hudson shared some more specific information with us. For more insider information on the health of IPERs, please email Tom McLaughlin who will share more specific information on the health of IPERs with LCEA members.
Iowa's largest public employee pension fund has lost more than $4 billion in the stock market's meltdown, and taxpayers could ultimately be on the hook if Wall Street does not recover, state officials said Thursday.
The Iowa Public Employees' Retirement System - with more than 312,000 members - has seen the market value of its investments drop since July 1 from $22.3 billion to an estimated $18 billion. That is a decline of 19.3 percent.
Karl Koch, IPERS's chief investment officer, warned the pension system's board Thursday that he expects "substantial future declines" once the fund factors in its losses in difficult-to-value investments in real estate and privately held stocks.
The fund's overall losses could reach 25 percent, he estimated.
"There is nowhere to hide," Koch said. "It seems like every portfolio is getting hurt."
IPERS was established in 1953. It covers current and former employees and retirees of state government, cities, counties, public schools and other agencies.
The pension fund has lost money only four years since 1981. Over the 28-year period, it has posted an average annual gain of 11.1 percent on its investments.
The current losses are significant because Iowa taxpayers "absolutely" could be responsible over the long term if the stock market does not recover because IPERS's benefits are guaranteed by law, said State Treasurer Michael Fitzgerald. He serves on the pension fund's board of directors.
IPERS's pensions are an important part of Iowa's economy, paying out slightly more than $1 billion a year in pension checks to retired government employees.
Of Iowa's 3 million population, IPERS members account for one of every 10 residents.
Fitzgerald said he remains optimistic about IPERS because the pension fund is well-managed with diversified investments. He said he sees no imminent crisis for taxpayers.
"I look at these results knowing that we are facing the worst times since the Great Depression," Fitzgerald said.
"There is no guarantee that things can't get worse. But where we are right now I think we are holding on very well."
David Creighton, a West Des Moines businessman who chairs the IPERS board, acknowledged that these are difficult economic times, but he said there is no reason to panic.
"Let's make sure that we remind ourselves that we are long-term investors" having a 40-year horizon, Creighton said.
About 87,000 people receive IPERS monthly pension payments. All will continue to receive those benefits, and there are no plans to reduce payments, said Donna Mueller, chief executive officer of IPERS.
The retirement system has stockpiled a cash reserve of about $200 million in response to the market crisis. That will provide plenty of money to pay obligations, officials said.
Iowa's retirement system is among many pension and institutional funds nationally that have been rocked by plunging markets.
The Kansas Public Employee Retirement System this week estimated its losses at 26.8 percent so far in 2008. Harvard University's endowment has reported investment losses of about 22 percent between July and October. New Jersey's pension fund has lost more than $23 billion this year, dropping to $57.8 billion, according to news reports.
IPERS was already facing a long-term shortfall of almost $2.7 billion at the end of June, according to an actuarial report submitted Thursday by a consultant.
Pension consultant Patrice Beckham told IPERS officials the shortfall could increase significantly because of declining investment returns this year.
Long-term funding of the pension system could be affected, meaning higher contributions from employees and their employers, she warned.
"More than ever, future investment return is critical," Beckham said.
The Iowa Legislature two years ago approved changes aimed at helping to fix IPERS's long-term financial issues by gradually increasing contribution rates from 9.45 percent of an employee's wages to 11.45 percent over a four-year period that started July 1, 2007.
Sixty percent of the contributions are made by government employers, with 40 percent by workers.
Starting July 1, 2011, the Iowa retirement system will review contribution rates annually and make adjustments as necessary based on an actuarial valuation. Rates can change no more than one-half of 1 percentage point annually for each membership class.
