Florida's Pension Chief to State: ‘Up Contributions, Lower Expectations’

(September 18, 2012) — Ash Williams and Florida’s State Board of Administration (SBA), which he heads, returned 22.1% on their largest mandate last year—and they know its not nearly enough.

Williams has been publically urging state legislators to increase contributions to the SBA, which manages 25 funds totaling $149.4 billion. He has written to elected leaders twice in the past four months, and included his recommendations in the board’s most recent annual report:

“Investment gains alone are not sufficient to maintain the fund’s financial health. Contributions into the system, from employers and, beginning in fiscal year 2011-12 from employees, form the base of SBA’s investment program. Annually determined actuarially sound rates of contribution into the fund are necessary to insure that the investment base is large enough to meet future Pension Plan benefit obligations.”

Florida’s retirement system has 87.1% of its liabilities funded as of the 2011 fiscal year’s end, which is consistent with many other public mega-funds in the United States. But, unlike SBA’s peers, this number is getting worse, not better. The system reached peak funding in 2000 at 118%. Contributions and funding level and have been falling ever since, and Ash Williams appears set on stopping this back-slide.

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“For the Plan to regain its fiscal footing, actuaries call for contributions to be higher than the normal cost level,” the annual report asserts below a demonstrative graph of the system’s elliptical funded ratio.

If Williams’ campaign is successful, the funded ratio will drop even further in the short-term. In addition to higher contributions, he is advocating to lower the system’s assumed rate of return from 7.75% to 7.25%.

It’s a time of flux for the state’s pension system: Florida’s Supreme Court is hearing arguments over a state official-led appeal for the 2011 pension overhaul, which was overturned earlier this year by a lower-court ruling. Lawmakers had passed a bill requiring members to contribute 3% of their pay to the pension fund, eliminated the cost-of-living adjustment for new retirees, and increased the number of required working years to qualify for benefits. In total, the overhaul saved taxpayers an estimated $1 billion for the 2011 fiscal year, then was struck down by a county judge at the behest of major unions.

The state’s Supreme Court agreed to hear the case on the basis that “this appeal is one presenting issues of great public importance and involves circumstances which require that the Supreme Court of Florida immediately resolve the issues,” according to court documents.

Should the court reinstate the reform package and legislators back Williams’ position, Florida’s pension system could soon be better funded, not worse, for the first time in over a decade years.

(September 18, 2012) — The State Oil Fund of Azerbaijan (SOFAZ) — whose assets totaled $32.67 billion as of July 1 — has purchased 10 tons of gold, Executive Director of the Fund Shahmar Movsumov has revealed to the Azeri-Press Agency (APA).

“We’ve also applied to the Cabinet Ministers with a proposal to introduce a zero rate of customs duties…on import of gold purchased abroad in the country. So far the fund has bought around 10 tons of physical gold,” Movsumov said.

According to the news agency, the fund’s investment policy allows it to keep up to 5% of its investment portfolio in gold. Within the next two years, the fund is planning to accumulate up to 30 tons of gold. SOFAZ began purchasing physical gold since February and by July, it accumulated 6.85 tons of gold for $343.14 million. By the end of 2012, the fund’s gold reserves will reach about 7.5 tons, a release by the agency noted.

Although gold is a non-yielding asset, its safe-haven status has been desired by some during continued economic crosswinds. The oil fund’s gold allocation may be wise timing, some investors say. Gerald-Alain Chen-Young, chief investment officer of the United Negro College Fund, told aiCIO that gold may be one of the best-performing asset classes over the next five years. “Gold is a natural reserve asset diversifier especially for central banks, sovereign wealth funds, and other large institutional investment portfolios…gold is an ancient, timeless store of value and therefore possesses the unique trait of being both an inflation and deflation hedge,” he said.

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In May, a Japanese pension fund allocated to gold through an exchange-traded fund, attempting to escape being hit by the troubled domestic and global economies. Yoshisuke Kiguchi, chief investment officer at the fund, said the move was to ‘escape sovereign risk’. Kiguchi said the pension fund trustees had been convinced of this investment decision as over the long term, gold could result in being one of the “safe currencies.”