Investment returns for the state’s two largest pension plans significantly outperformed expectations in the last fiscal year, State Treasurer Denise Nappier said Monday, rebounding from a poor showing the year prior.
The Teachers’ Retirement Fund and the State Employees’ Retirement Fund posted returns of 14.4 percent and 14.34 percent, respectively, for the fiscal year that ended June 30. The state’s projections for the two funds were 8 percent and 6.9 percent.
Those two funds account for 90 percent of the state’s $32.4 billion in pension accounts. The average return across all investments was 14.20 percent.
This year’s returns were driven by strong performance in three international and domestic stock funds where more than half of the pension funds are invested. Over the same period of time, the S&P 500 index grew 17.64 percent.
Nappier said the returns were good news in a year of events that created “substantial market uncertainty,” including the Brexit referendum, the U.S. presidential election and elections abroad.
“Through all the volatility, our asset allocation strategy and asset manager performance proved resilient — fully capturing the market upswing and adding significant additional value,” Nappier said in a written statement. “Outperforming the market, as reflected in returns above our benchmarks, is always gratifying, particularly for the taxpayers we serve during these tight fiscal times.”
Five- and seven-year returns for the two funds are closer to expectations, with the teachers’ fund and state employees’ fund both beating five-year expectations and narrowly missing seven-year benchmarks.
Beating expectations means the state will need to contribute less in future budgets to fund its pension obligations.
“Every additional investment dollar earned is one less tax dollar needed to meet the state’s pension benefit obligations, and therefore, available to support funding for critical state programs and services,” Nappier said.
The rate of expected return for the state employees’ pension fund was lowered to 6.9 percent from 8 percent in December as part of a deal reached between the Malloy administration and state employee unions to avoid ballooning pension payments that would have reached between $4 billion and $6 billion annually in the early 2030s.
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