A new, nonpartisan report is warning North Carolinians that their retirement pension’s assumed returns are ‘overly optimistic,’ causing concern across the state. The alarming analysis offers both criticism and solutions.
An analysis of North Carolina’s Teachers’ and State Employees’ Retirement System (TSERS) conducted by the North Carolina-based nonprofit John Locke Foundation found that, despite the state's pension plan being a top funded system in the country, it could have a number of weaknesses that “could jeopardize its fiscal health in the long run.”
Even with the state’s TSERS nearing a 90% funding threshold at a time when the average public pension plan is only 72.6% funded, the analysis says there is cause for concern as the system’s funded ratio has been on the decline for the past two decades and currently has $9.64 billion in unfunded pension liabilities.
“Although TSERS has made some changes to its assumed rate of return over the past years, it still remains too high,” the report stated. “Moreover, in order to achieve the target assumed rate of return, TSERS is likely to have to introduce even more risk — and therefore greater uncertainty and potential volatility — to the plan.”
However, the report found that the plan’s portfolio already has unpredictable, volatile investment returns due to high-risk assets – possibly making the future even more uncertain for North Carolina retirees.
“Marginal improvements to the existing TSERS benefit system can pay off greatly in the future and ensure the system stays on solid financial footing for the long term,” the report said. “Better risk management and more realistic plan assumptions can help ensure the state delivers the promised retirement benefits to its employees.”
The John Locke Foundation was created in 1990 as an "independent, nonprofit think tank that would work for truth, for freedom, for the future of North Carolina.”