Stock market setbacks weigh on Alabama teachers' retirement fund

Stock market setbacks weigh on Alabama teachers’ retirement fund

A tough year for the stock market has taken its toll on the Alabama Teachers and Education Employees Pension Fund, wiping out most of the investment gains made in a banner year in 2021.

The teachers’ pension system oversight board held its quarterly meeting Tuesday in Montgomery and received a report on fiscal year 2022, which ended September 30. The TRS is the largest of two dozen funds managed by Alabama’s retirement systems.

Overall, TRS investments had rates of return of minus 13%. The value of the pension fund increased from $30.6 billion to $25.6 billion.

“We had what I would call a pretty good crush,” RSA chief executive David Bronner told the board.

This was a reversal from 2021, when TRS investments returned 22.6%, a gain of $5.7 billion.

“So what God gives he certainly took back last year, so we’re back to where we were,” said Bronner, who has led the RSA since 1973.

The TRS pays retirement benefits to 105,000 retired education employees, totaling about $209 million in monthly payments. The TRS added 3,224 new retirees during the year. The number has increased by nearly 50% since 2010, when there were 70,000 retirees. Pensions are defined benefit plans and retiree payments will not be affected by a year of investment losses.

“We did almost 22% the year before,” said TRS Vice Chairman of the Board, Ricky Whaley. “And there is a smoothing that happens in the retreats. And I would say that everything will be fine. I trust the staff here. Dr. Bronner has been with us for 50 years and we have always been very successful.

Here are the rates of return of the TRS over longer periods:

  • 4% in the last three years
  • 4.8% over the last five years
  • 7.3% over the past 10 years

In addition to investment income, the funds are fed by employer and employee contributions. The Legislature appropriates an amount determined by actuaries. During the last fiscal year, employer contributions to the TRS amounted to $932 million. Employer contributions as a percentage of payroll have remained essentially stable since 2010, at around 12%.

Employee contributions were $554 million for the year. Employees pay 7.5% of 6% of their salary for retirement, depending on whether they are in the Tier 1 or Tier 2 plan.

The RSA manages a separate fund for retired state civil servants and retired local authorities, the Employee Retirement System (ERS). The investment results of the ERS pension fund were nearly identical to those of the TRS this year and have been for the past 10 years. The ERS is about half the size of the TRS in funds and members.

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

Domestic equities accounted for 51% of TRS investments. They fell 14.9 percent for the year. This performance was slightly better than that of the S&P 500, which fell 15.5% during this period.

International equities accounted for 13% of TRS’s investments; fixed income securities, 13%; real estate, 11%; private placement and private equity 7%; and cash or short-term investments, 5%. These figures fall within the ranges established by RSA’s investment policy, adopted by the Board of Control in 2015.

Overall, TRS fixed income investments were down 13% for the year. Real estate investments have essentially broken even.

The TRS owned $2.7 billion in real estate as of September 30. The most valuable property was 55 Water Street, New York’s tallest office building, with a market value of $1.3 billion, according to the year-end report. Bronner said the building was about 98% occupied. Other real estate includes office properties in Alabama, including eight office properties in downtown Montgomery, and another under construction. RSA has nine resort hotels in Alabama and the Robert Trent Jones Golf Course.

Bronner said the past two years have been the most successful for hotels after a disastrous year in 2020 due to COVID. Bronner has been a longtime advocate of resorts and golf courses because of the tourism and economic benefits to the state.

“It’s going in the right direction,” Bronner said. “The year ’23 seems to be as good or better than ’22. It has such an effect on the state to have conferences and keep them in the state by spending money.

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