According to a Legislative Finance Committee study, Educational Retirement Board (ERB) fund and Permanent School Fund investments last year were bad enough to rank them among the worst performing funds of their kind in the nation.
But, beginning July 1, state lawmakers are going to force education employees, who earn more than $20,000 a year, to pay more of their much-needed spending money into the ERB by raising retirement deductions.
The Educational Retirement Board funds did so poorly the LFC warned their ability to meet obligations to education retirees is in jeopardy if performance doesn't improve.
The decline lowered the ERB's 10-year return to 1.8 percent. ERB requires a long-term growth rate of 8 percent to accumulate enough money to honor commitments to retirees, according to the LFC.
The Permanent School Fund ranked in the 61st percentile of similar funds in the nation, meaning that 60 percent of funds performed better.
The Education Retirement Board funds ranked in the 85th percentile, meaning that 84 percent of similar funds performed better.
The State Investment Council manages the Permanent School Fund. ERB has separate management.
Both the State Investment Council and the ERB are under fire for having hired out-of-state consultants who are under Grand Jury indictment on 127 separate counts in the State of New York for "pay to play" allegations. These same consultants recommended that the state funds be invested in highly risky "hedge funds", resulting in one loss of approximately $90 million.
The State Investment Council recently suspended the indicted consultants over objections of Gary Bland, the Council's chief advisor. Bland is paid more than $350K a year to advise the Council and was hand-picked by Gov. Richardson for the job.
ERB's worst performing assets were fixed income and hedge funds.
The hedge fund assets under-performed "by a staggering 1,920 basis points," according to LFC. A basis point is one 100th of a percentage point.
The Permanent School Fund's losses were due in part to under-performance made worse by changes in hedging strategies.
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