State pension fund sees greatest return in three years in 2016

GENERAL TREASURER Seth Magaziner said the pension system outperformed the state's benchmarks in 2016 and earned more than $500 million for the pension system. / PBN FILE PHOTO/ MICHAEL SALERNO
GENERAL TREASURER Seth Magaziner said the pension system outperformed the state's benchmarks in 2016 and earned more than $500 million for the pension system. / PBN FILE PHOTO/ MICHAEL SALERNO

PROVIDENCE – The state’s $7.7 billion pension fund realized a 7.4 percent – or $530 million – gain on investment during 2016, marking the greatest return since 2013.

The fund performance fell short of its 7.5 percent target return, but outpaced its internal benchmark plan, which returned 6.4 percent, and a standard 60 percent stock, 40 percent bond plan, which returned 5.9 percent.

The 7.4 percent return is the largest gain the plan has realized since a 14.1 percent return reported in 2013, according to figures released Wednesday.

“In a year of significant volatility in the financial markets, the pension system outperformed our benchmarks and earned more than $500 million for the pension system,” said General Treasurer Seth Magaziner.

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The market value of the fund grew 2.3 percent – or $173.7 million – to $7.7 billion compared with December 2015, as a portion of the market gains was paid toward benefits.

The plan’s three-year return totaled 3.8 percent, its five-year return totaled 7.5 percent and its 10-year return totaled 4.3 percent.

The State Investment Commission last year approved a new investment strategy proposed by Magaziner. The plan is designed to unload about $500 million from hedge fund investments, strengthen performance and reduce risk.

The State Investment Commission this spring is expected to consider whether to change the state’s expected return of 7.5 percent, which has been difficult to attain, thus weakening the long-term fiscal stability of the plan.

Altering the expected return, however, could end up costing more on an annual basis for the state and its employees.

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