RI Pension Rate of Return, Net Investment Income Saw Declines in FY 2019, Says Auditor General

The rate of return for the Employees' Retirement System of the State of Rhode Island (ERSRI) dropped to 6.54% in Fiscal Year 2019 and net investment income fell $100 million from the prior year, according to the Rhode Island Auditor General's audit released Monday. 

The time-weighted rate of return during the fiscal year was 6.54% (compared to 8.03% during the prior fiscal year), and net investment income was $532 million (compared to a net investment income of $633 million during the fiscal year 2018). 

For the period the same period -- July 1, 2018 to June 30, 2019 -- equity indices were +10.41% for the S&P 500 and +12.20% for Dow Jones.

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"This report indicates that the pension has underperformed both its custom benchmark and 60/40 benchmark for the year and significantly underperformed the S&P 500," said Rhode Island pension critic Edward "Ted" Siedle, who writes for Forbes and recently became the biggest whistleblower in SEC history. 

"While hedge fund investments have been cut in half -- they have not been eliminated," said Siedle. "And greater assets have been allocated to high-cost, high-risk private equity real estate, and infrastructure investments."

"This is hardly 'back to basics,'" said Siedle, alluding to General Treasurer Seth Magaziner's strategy. 

The system reported total investment expenses of $84.2 million for fiscal 2019.

Audit Details

Auditor General Dennis Hoyle reported that overall, the net position of the Retirement System increased by $344 million during fiscal 2019 to $9.6 billion at June 30, 2019.

The net position had increased by $424 million in Fiscal Year 2018. 

Benefits paid to retirees and beneficiaries from the defined benefit plans during fiscal 2019 totaled $963 million, and distributions from the defined contribution plan totaled $19.6 million. Employee and employer contributions totaled more than $625.5 million to all the defined benefit plans. Employee and employer contributions totaled $125.9 million to the defined contribution plan.

Amounts accumulated in the defined contribution plan totaled $1 billion at June 30, 2019. Most defined contribution plan assets (90%) are held in target date retirement fund investments.

The accounting measures of the net pension liability (GASB Statement No. 67) used for financial reporting differ from the measures used to determine actuarially determined contribution amounts for funding purposes.  Employers participating in the System’s plans report the net pension liability (asset), or their proportionate share, on their government-wide financial statements as required by GASB Statement No. 68 - Accounting and Financial Reporting for Pensions.

Each plan’s fiduciary net position as a percentage of the total pension liability is shown below:

ERS – State employees 52.8%

ERS – Teachers 54.6%

Teachers’ Survivors Benefits 150.2%

SPRBT–  State Police 83.1%

JRBT – Judges 95.7%

RIJRFT – Judges 4.7%           

SPRFT – State Police 9.3%

MERS – General Employees 80.0%

MERS – Police and Fire 77.7%

Read the full report here. 

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