Stress Test Fins NC Pension Funds Well Positioned to Weather Economic Uncertainty

RALEIGH – Governor Roy Cooper recently sniped that he could not stand, “a financial lecture from the nation’s least effective state treasurer” in response to Republican State Treasurer Dale Folwell demanding accountability for massive overspending under Cooper’s watch. Well, the alleged worst state treasurer in the nation announced Thursday that the state pensions he’s responsible for just aced a ‘stress test’ and sports the sixth best funding ratio in the nation.

From the Office of State Treasurer:

“The test was conducted by The Pew Charitable Trusts (Pew) and presented to the Teachers’ and State Employees’ Retirement System (TSERS) and Local Governmental Employees’ Retirement System (LGERS) Boards of Trustees during a recent meeting.

Pew said that compared to other states they tested, North Carolina’s state pension fund is well-positioned to maintain solvency during tough economic times. […]

Stress testing is a simulation technique that forecasts the potential impact of investment risk and contribution risk on pension balances and government budgets. It analyzes the need for higher state pension appropriations to offset lower investment returns during an economic downturn, and how that might impact funding for core government services such as schools, public safety, and infrastructure.

Pew found that, even in downside scenarios (e.g. recession), the North Carolina pension system’s current funding policy positions it well to withstand economic headwinds. […]”

When Governor Cooper defensively attacked Folwell, he criticized the Treasurer’s pension returns for trailing the market. We noted here that because of risk profile reforms implemented to reduce pension volatility and uncertainty of returns investments for the funds are necessarily more conservative. That means they might not rally as high during good times, but it helps ensure sustainability of returns during bad times. That is exactly what Pew has found in their tests.

Folwell had some lines for the governor, it seems, in his comments on the stress tests:

“[…] I want to thank Pew for their insightful analysis of North Carolina’s pension system. It showed that at the end of the day, we’re one of the best funded pensions in the country. However, we have to continue to save and make money as well as have a realistic expectation that future challenges remain. This includes enforcing laws that prevent money from leaving the system, and supporting additional legislation that reduces complexity and preserves the benefit for present and future public sector employees.”

Treasurer Folwell noted that the pension system has not made its assumed rate of return on average in the last 20 years and will have less than a 50% chance of achieving it for the next 20 years. […]”

While governments spending other people’s money have obligated taxpayers to huge government employee pension liabilities built on unrealistic expectations for investment returns, Folwell has been busy making tough decisions to mitigate the risk to taxpayers and state retirees alike.

If that’s the track record of the “nation’s least effective state treasurer,” something tells us taxpayers are okay with that.