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Friday, December 1, 2017

PSPRS investment returns through September 2017 (with some information from PSPRS' FY 2017 actuarial report)

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 through September 2017, which ends the first quarter of the current fiscal year (FY), with the FY end 2014, 2015, 2016, and 2017 returns included for comparison:

Report PSPRS PSPRS Russell 3000 Russell 3000
Date Month End Fiscal YTD Month End Fiscal YTD
6/30/2014 0.78% 13.82% 2.51% 25.22%
6/30/2015 -0.73% 4.21% -1.67% 7.29%
6/30/2016 -0.32% 1.06% 0.21% 2.14%
6/30/2017 0.22% 12.48% 0.90% 18.51%





7/31/2017 0.83% 0.83% 1.89% 1.89%
8/31/2017 1.06% 1.91% 0.19% 2.08%
9/30/2017 0.80% 2.72% 2.44% 4.57%

There is usually about a two-month lag in PSPRS reporting its investment returns.

Through the first quarter of FY 2018, PSPRS has reverted back to returning 50-60% of the Russell 3000, achieving 59.5%, gross of fees, of the return of the Russell 3000.  For FY 2017 PSPRS returned, net of fees, 64% of the Russell 3000, which was an improvement over the previous three fiscal years.  It will take several more fiscal years to see if FY 2017 was the start of a trend or just a blip, but 60% still seems to be the high end of the range for PSPRS in comparison to the Russell 3000.

PSPRS' November 2017 meeting materials also contained the draft of PSPRS' FY 2017 Actuarial Report.  Anyone interested can find that draft report starting on PDF page 298 in the meeting materials.  The aggregate employer contribution rate for Tiers 1 and 2 increased slightly to 51.93% from 51.84%, meaning that all the state's employers combined will contribute $51.93 for every $100 in pensionable wages for all the state's active Tier 1 and Tier 2 members.  Individual employer contribution rates for Tier 1 and Tier 2 employees vary widely and can be found on PDF pages 369-374.   If anyone wants to see if an employer's rate has increased or decreased from the previous FY, FY 2016' individual actuarial reports can be found here.  The employer contribution rate for my employer increased by almost 9%, creating more budget problems for my employer as several million more will have to be paid to PSPRS starting in July 1, 2018.

PSPRS' aggregate funded ratio decreased  to 45.30% from 46.00%.  Individual employer's funded ratios can be found on PDF pages 363-368.  These ratios run from a couple in the single digits to a few that are over 200% funded.  Once again, you can compare FY 2017 to FY 2016 by checking your individual employer report.  My employer's funded ratio dropped 0.10% but still remains under one-third funded.  Most of the major public safety employers, like DPS and those in the Phoenix Valley, appear to be 30-50% funded.

One last interesting tidbit in the meeting materials was the current breakdown of Tier 3 members who chose the defined benefit (DB) versus the defined contribution (DC) plan.  Out of 187 Tier 3 members, only twelve chose the DC plan, 6.4%.  As more Tier 3 members join the ranks and the DC plan becomes better established, it will be interesting to see if this percentage grows over time.

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  Returns, gross of fees, are used in the table for consistency.  The past two years fees have reduced the final annual reported return by about a half percent.  Returns, net of fees, were 13.28% in FY 2014, 3.68% in FY 2015, 0.63% in FY 2016, and 11.85% in FY 2017.