The Virginia Retirement System, which provides retirement benefits for hundreds of thousands of teachers, state judges, police officers, firefighters and other government employees throughout the commonwealth, reported a dismal 1.4% rate of return on its investment portfolio in fiscal year 2020.
VRS Board Chairman O’Kelly McWilliams tried to put a brave face on the fact that 1.4% is well below the 6.7% goal the system needs to meet its pension obligations — which it met last fiscal year, according to its 2019 annual report.
In a statement in September announcing the low rate of return, he said the system remains “focused on long-term outcomes.”
He did not mention the fact that VRS ended the 2020 fiscal year with a balance of $81.6 billion, which is $2.8 billion below last year’s “historic year-end high of $84.4 billion.”
Big numbers like these are hard to comprehend, but $2.8 billion is roughly equivalent to the commonwealth’s entire budget shortfall due to the coronavirus pandemic and subsequent lockdown.
In other words, it’s a lot of money. And losing that much money in one year does not bode well for the pension funds’ long-term outcomes.
Those inclined to give portfolio managers at VRS a pass this year due to the volatility of the stock market should consider the fact that the Maryland State Pension System earned a 3.6% rate of return in fiscal 2020 — or more than double what VRS was able to achieve during the same time frame.
Maryland’s pension system officials admitted that they also missed their assumed rate of return, which was 7.4%, also claiming that fiscal 2020 was a particularly difficult year for large institutional investors.
But at least they managed not to lose money. The Maryland pension fund’s total asset value increased by $563 million, while VRS’ total asset value decreased by $2.8 billion.
University of Virginia economics professor Ed Burton, a former member of the VRS Board, said Virginia’s pension system should have earned closer to 8% based on the S&P 500 and Barclays Aggregate Bond indices.
He blamed VRS’ asset allocation strategy, which he said produced “a pitiful return, during a period when markets were very favorable.”
And here’s the kicker: “The lower returns will eventually require greater general fund [budget] obligations,” Secretary of Finance Aubrey Layne told the Richmond Times-Dispatch.
Meaning that Virginia taxpayers — most of whom do not receive such generous pension benefits, if they get a pension at all — will eventually get a bill to cover more than $23.4 billion of VRS’ unfunded liabilities, which are “shared” by localities, and just increased from 25% of the total promised benefits last year to 29% now.
The top officials at VRS are among the highest-paid employees in the commonwealth. Their one job is to grow the pension fund so that Virginia taxpayers are not stuck picking up the tab again.
Their half-a-million-dollar or more paychecks would be justified if the returns they achieved were as outsized as their salaries, but they’re clearly not.
It’s time for a shake-up at VRS.
The (Fredericksburg) Free Lance-Star
Editor’s note: Editorials published from other sources do not always represent the viewpoints of The Daily Progress, but are offered in an effort to share additional opinion and information.
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