Rhode Island’s pension fund earned just 1.4 pecent in fiscal 2012

Dec 7, 2012

Rhode Island’s $7 billion+ pension fund — which is banking on an expected rate of return of 7.5 percent to pay its long-term obligations — earned just 1.4 percent over the fiscal year that ended June 30.

State Treasurer Gina Raimondo, who chairs the state Investment Commission and sparked the move last year to lower the pension fund’s expected rate of return, says she doesn’t think the state’s expected 7.5 percent rate of return is too optimistic. In an interview, she said:

“It’s important to realize that investments for pension funds and assumptions for investments for pension funds need to be looked at over the long term. There’s a great deal of volatility.

So, for example, if you had picked the one year period from the beginning of October 2011 to the beginning of October 2012 it would have been 8.5 percent. So it’s actually quite dangerous to look at anyone 12-month period, because as you know, there’s a lot of up and down in the market.”

Fiscal years are a commonly used measure for comparing the performance of public pension funds.

Raimondo says “the right way” to look at the pension fund’s performance is over a long period and looking forward.

The treasurer spoke hours after a hearing in which Superior Court Judge Sarah Taft-Carter heard opposing arguments about a state motion to dismiss a union-backed challenge to last year’s landmark pension overhaul. It’s not clear when Taft-Carter will decide the motion. Today’s hearing marked an early skirmish in what promises to be a prolonged legal fight.

Raimondo says Rhode Island’s expected 7.5 percent return on the state pension fund is at “the high end of the reasonable range” considered by state investment advisers and actuaries, “but it was a reasonable number.”

Rhode Island’s 1.4 percent return for fiscal 2012 was slightly better than the 1 percent earned in 2012 by the California Public Employees’ Retirement System, although CalPERS’ target for growth was a modest 1.7 percent, according to the Los Angeles Times.

Raimondo says the state’s 10 year return is about 7.9  pecent and the 15-year return is about 5.53 percent.

WPRI’s Ted Nesi reported in January that Rhode Island’s pension fund earned a 1.4 percent return for 2011. As Ted has noted, investment expert Allan Emkin is more skeptical about the Ocean State’s ability to reach its investment goals.