The Arkansas Teacher Retirement System’s trustees on Monday authorized investing up to $30 million in a real estate fund and up to another $30 million in a private-equity fund.
The board of trustees also approved paying an additional 1 percent in interest at the end of the fiscal year next June 30 to the cash-balance accounts of retired system members who have placed all or part of their deferred retirement plan proceeds into such accounts managed by the system.
The system has paid on average of about 2.5 percent interest a year on about 1,000 cash-balance accounts that total about $109 million, said system Director George Hopkins.
The teacher retirement system is state government’s largest retirement system with more than $16 billion in investments and more than 100,000 working and retired members.
The cash-balance accounts for which the trustees authorized paying an extra 1 percent in interest currently pay an initial 2 percent interest rate in the first year. That rate goes up by 0.25 percentage point a year until reaching 4 percent after seven years of participation in the program, Hopkins said.
The cash-balance accounts are for members retiring from the system’s deferred retirement plan who decide to place part or all of their plan proceeds in the accounts, to be withdrawn at their discretion.
The program’s rules allow the board to authorize an extra incentive interest rate after strong investment returns for the system, he said.
He recommended approval of the 1 percent incentive rate to be paid on the cash-balance accounts on June 30 to reward members who maintain an account throughout fiscal 2018 and to encourage members to continue to use the accounts.
“It’s a one-year incentive to get in the program,” said Trustee Jeff Stubblefield of Charleston, who also was re-elected as the board’s chairman Monday.
Based on the system’s 16.1 percent investment return in fiscal 2017, the system made roughly $16 million on roughly $100 million in the cash-balance accounts and paid out roughly $2.5 million in interest to the accounts, Hopkins said.
The system’s total investments were valued at $16.287 billion as of July 31, up from $16.119 billion on June 30, based on a preliminary report Monday from the system’s Chicago-based investment consultant Aon Hewitt Investment Consulting.
The preliminary report includes changes in the value of the system’s stock, bond and opportunistic/alternative investments for July, but not changes in the values of the system’s real estate, timber, agriculture, infrastructure and private-equity investments that are valued on a quarterly basis.
The trustees authorized investing up to $30 million with the U.S. Real Estate Credit Fund III LP, managed by Calmwater Asset Management of Los Angeles.
The fund, with a target size of $750 million, will be focused primarily on making senior secured loans on transitional commercial real estate properties located in the primary and secondary markets of the United States, Aon Hewitt Investment Consulting said in a report to the trustees.
Clearwater Capital V LP, managed by Clearwater Capital Group of Santa Monica, Calif., is the private-equity fund for which the trustees authorized an investment of up to $30 million.
The fund, with a target size of $2.5 billion, will seek to make investments in companies that are undergoing significant change and/or in underserved industries or markets. It will focus primarily on the industrial, energy, software and technology services sectors, according to the system’s private-equity investment consultant Franklin Park, based in Bala Cynwyd, Pa.
The trustees also asked Hopkins to gather more information and cost-savings estimates about limiting through legislation how much unused sick and annual leave system members can use to count toward their final average salary for calculating retirement benefits. The final average salary is based on each member’s three highest salaried years.
“Some schools are now understanding that members have an incentive to increase their salary before they get into [the deferred retirement plan] and if they’re [going into the deferred retirement plan], that end-of-employment payment doesn’t really help their final average salary,” Hopkins told the trustees.
“So what some schools have done is they moved into letting a member three years before they get into [the deferred retirement plan] take essentially, if not a third, close to a third of their sick days, and eliminate them off their books and then in return give them salary credit like in the 26th, 27th and 28th year [of employment],” he said.
“As we prepare to absorb this new mortality table [with members living longer and] as we prepare to have all these think tanks and governmental accounting standards boards and actuarial boards, push our assumed rate of return down, we really need to tighten up holes where we see them,” he said.
The system currently assumes an 8 percent annual investment return.
“At an executive staff level, we feel like the board really needs to look at how we pay out sick leave and end of employment payments,” Hopkins said. “Perhaps we ought to limit the amount of it that can be used.
Metro on 09/26/2017