RALEIGH, NC (WBTV) - Years of risky investments by North Carolina Treasurer Janet Cowell could put the future of the state's pension fund at risk, an On Your Side investigation has found.
The North Carolina Retirement System invests its $86 billion pension fund as a way to generate enough revenue to cover its obligations to retired state employees. In addition to investment income, the NCRS is funded by contributions from state employees and money allocated in the state budget from the legislature.
By law, Cowell is the sole fiduciary of the investment fund. In recent years, the State Employees Association of North Carolina has criticized a series of decisions Cowell has made about how to invest the fund's billions of dollars.
"The returns on the pension fund have not been anywhere near what we would have wanted to see but, more importantly, they're not near what other large pension funds are returning," Ardis Watkins, SEANC's chief lobbyist, said. "We're basically a 'D' student when it comes to performance."
Watkins and SEANC have singled out a decision by Cowell to invest more of the fund's money in alternative investments, which carry a higher risk and cost more in investment fees.
"Those aren't giving us the kind of returns that you would expect for that type of risk. In fact, they're dragging us down," Watkins said.
A report filed by Cowell's office in the fourth quarter 2015 shows the fund had virtually no returns last year, .3 percent. That same report put the fund's returns for the past 15 years at 5.5 percent, well below the expected 7 percent.
The fund's lagging performance over time has meant lawmakers have less money to use to give retired state employees a raise in their cost of living allowance.
In this year's budget, the House proposes a 1.6 percent COLA increase for state retirees but the Senate's budget doesn't include a COLA increase at all.
"One of the things we looked at was the overall fiscal health of the pension plan. It's not fully funded," North Carolina President Pro Tem Phil Berger (R-Rockingham) explained.
Berger said the fiscal research division estimates the COLA increase included in the House budget would cost the state pension plan somewhere around $700 million dollars, money that is not available because the plan is not meeting its expected gains.
"The fact that you don't get that return already creates a problem and if you exacerbate that problem by adding to the cost, you just make things that much worse," Berger said.
A spokesman for Cowell's office, Brad Young, declined to make anyone available for an interview with On Your Side Investigates but a statement defending the pension fund's performance during Cowell's tenure as treasurer.
"Over the past 7 years, under Treasurer Cowell, the North Carolina Retirement Systems ("NCRS") investments have had an 8.4 percent annualized rate of return net of all fees and expenses. For the year ended December 2015, investment returns were much lower due to a weak global stock market, but the NCRS' performance was ranked in the top 25% of public pension funds in the U.S. with at least $1 billion in assets because of our low-cost and highly
diversified long-term investment strategy. The NCRS remains one of the most solid public employee retirement systems in the nation and is well positioned, even though financial markets are expected to remain challenging the next few years."
Watkins, the SEANC lobbyist, lays some of the blame for the pension fund's poor performance on the legislature, which has passed legislation in recent years increase the amount of money the treasurer can put in alternative investments.
"I hope the legislature is learning from what they're looking at right now," Watkins said. "If they don't rein in this gambling mentality with the retirement system, they're going to be left holding the bag. These retirees are going to expect to see their retirement and if we keep going down this risky path, that's going to become something that's in jeopardy."