A dizzying display of 100 pages of documents described over a six hour period at the IPERS Investment Board meeting this week boils down to this:
In 2008, IPERS showed a portfolio worth $22 billion. Today the portfolio value hovers around $18 billion.
The IPERS Real Estate portfolio, for example, which makes up 9.2 percent of the fund allocation has lost 14 percent with the luxury hotels within the portfolio seeing a 30 percent write down. The IPERS investment advisors touched on the “evidence of stress” in retailer bankruptcies (Circuit City and Linen and Things) and the bankruptcy of General Growth Properties. Disturbing to this sector of the portfolio was the news that the year 2012 is a refinancing year for many commercial, retail and office properties.
The Investment Board questioned the loss of funds through the Westridge fraud case. From March of 2007 through October of 2008, IPERS invested $500 million with Westridge. The market value of those funds today is $291 million.
Of the $291 million, IPERS officials expect that 40 percent of that amount will never be recovered. The federal fraud case pending shows that funds recovered may allow IPERS to recoup 60 percent of the $291 million.
So from a $500 million initial investment, IPERS stands to maybe, possibly recoup
News like this accentuates the relevance of the actuarial studies described in the last newsletter. In September, the Benefits Advisory Board will look at the results of these three studies:
- Review the Rule of 88 and the rule of age 62 with 20 yrs of service. Instead full retirement benefits at age 65 or a 3 percent reduction in benefits if you go b/4 age 65.
- Reduce future benefits for new and current employees (not retirees).
- Increasing the contribution rate as much as is affordable, but no more than 14 to 16 percent. For FY10 the contribution rate is 10.95 percent.
Expect IPERS to be a key topic for the 2010 session.. It certainly looks like changes are ahead for those public employees now paying into IPERS. By law, current retiree benefits cannot be reduced. But for current employees, the benefits, retirement rules and contributions rates can and most likely will change.