Bacon's Rebellion

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VRS Portfolio Up 12%

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by

James A. Bacon
in ,

portfolio

The Virginia Retirement System (VRS) achieved an 11.8% return on its investment portfolio in fiscal year 2013, ending the year with $58.3 billion in assets, the VRS reports.

The news is not exactly unexpected. The the stock market reached record highs over the past year, allowing the VRS to generate an 18.6% return on its public equity portfolio, more than making up for the dismal -0.1% return on its fixed-income investments. But the overall return, which is significantly higher than the 7% annual rate of return assumed for the purposes of calculating future liabilities, is welcome nonetheless. In theory, 5% more juice from the portfolio reduces the need for future cash contributions from state and local governments by some $2.5 billion.

That’s serious moolah.

Of course, there’s a caveat. There is enormous variability in year-to-year returns, and there is no guarantee that the VRS will replicate that performance in future years. Indeed, one could make a case that fixed-income investments like bonds have nowhere to go but down, unless the Fed continues its Quantitative Easing pretty much forever, and that the stock market is cruising for a correction.

Still, there is precious little good news of any kind in the world. If this is the only bone we get, we’re happy to flop down on the floor and chew on it a while.

— JAB

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6 responses to “VRS Portfolio Up 12%”

  1. larryg Avatar
    larryg

    Jesus Bacon – we were supposed to be in the initial meltdown stage of Boomergeddon by now.

    Were you crying Wolf or what?

  2. James A. Bacon Avatar
    James A. Bacon

    My fervent hope is that Virginia has enough sense to avoid Boomergeddon. Washington, D.C., is a lost cause. Our refuge is state and local government.

  3. Breckinridge Avatar
    Breckinridge

    Boomergeddon starts when the sea level rise reaches the state capitol, and not a moment before.

    VRS has always been well-managed, if not always fully funded by the General Assembly (which has reduced the recommended deposits or fudged the assumed returns a few times for short term benefit). Virginia’s long, fully bi-partisan tradition of fiscal prudence has served VRS well. May it continue to stay above the political correctness fray.

    1. larryg Avatar
      larryg

      I agree completely and I once again will point out – it’s not only about how pensions are configured – defined benefit vs defined contribution and how the stock market performs but HOW MANY pensions you have.

      And I still think the bigger threat to the pensions is the fact that we have way more teachers – teaching non-core academics, electives beyond those needed for a diploma, and other important courses important to parents and kids but not necessarily the legitimate purpose of taxation for public schools.

      Parents need to have some skin in the game of discretionary spending (and I’d support taxpayers paying for kids needs/wants who are on reduced/free lunches).

      Every career teacher is a pension whether they are teaching heavy-duty reading to a 3rd grader or photojournalism to an 11th grader.

      we treat both the same in terms of salary and pension – and to a certain extent we treat the need for both – based on class size as if class size for 3rd grade reading is the same for 11th grade photojournalism.

      Teachers pensions are probably 3/4 of the pension issue in Va.

      It’s a numbers game as much as it is the type of pension and the performance of the stock market.

      And of course, the whole deal involving choice/charter schools has some interesting perspectives also with regard to benefits including pensions.

  4. larryg Avatar
    larryg

    Well Va and the other pension funds benefited from the recovery of the stock market I agree with your point that everyone knows now that making projections based on future stock market performance is problematic and I’d be interested to see if they adjusted their projections.

    The other thing is that most companies and the US govt in 1986 converted their pensions to much smaller defined benefit and added the defined contribution component but Va has not I believe and they need to especially for teacher pensions.

    The thing that is going to kill the Feds IMHO – and the states including Teachers is health care costs and in turn tax-free employer-provided health insurance – Cadillac type plans.

  5. DJRippert Avatar
    DJRippert

    A rising tide floats all boats just as surely as a falling tide lowers all boats. 2013 has (so far) confirmed my brilliance as an economic thinker based on my stock market performance. That’s certainly a welcome event since 2009 called my brilliance into serious question.

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