The $12.6 billion Public Employee Retirement System of Idaho has been around since 1963, and is one of the most successful public pension funds in operation, with a funding percentage of more than 87 percent. Robert Maynard has been the pension fund’s CIO since 1992. The Journal of Indexes caught up with him recently for a chat about sound pension fund management policies and the role of passive investment.
JOI: Tell us a little bit about PERSI.
Maynard: It’s a multiple-employer trust. We have over 100,000 members. About 65 percent of them are active, and about 35 percent are retired. We have teachers and public employees. The mandated ones are the state employees and the teacher systems. Basically, we include all statewide employees and teachers. The discretionary participants, who can choose to go in or out, are cities, hospital districts, water districts, those types of things.
JOI: How much does the fund have in assets?
Maynard: As of Dec. 20, the fund has $12.585 billion. As of this morning, we are 87.3 percent funded.
JOI: That’s an amazing number. To what do you attribute the fact that PERSI is so well funded?
Maynard: Our political system. People will always complain about legislatures and whatnot, but our political system has been a hero on this over the years. It has basically kept the liabilities under control and has always fully funded everything.
Even if you look at the people that are underfunded, it’s been a great 20 or 30 years. All of us have made 9 percent per year, for example. Very few of us—and I can’t think of any, except those who had to be in bonds for a lot of that time—haven’t made well above their hurdle rates. The difference in funding levels is due to either over-promising benefits or under-funding on contributions, or both. For example, New Jersey didn’t pay contributions for years, and that’s the problem. Our legislature has always paid for the benefits, hasn’t over-promised benefits, and has always kept up with what the law requires. They always have to put in the minimum above that 15 percent level, basically what’s called “normal cost.” As a result, we’re in fine shape.
If we were a corporation, we would be probably 110 percent funded. But one thing the public pension funds do is that we assume everybody right now is making their salary at the time of retirement. That basically doubles that liability for active members. If we were corporate, we would be in even better shape than that.
If you look at the returns of the New Jersey Division of Investment, for example, the returns have been fine over the decades. I’ve known that system for 30 years. The problem is, for years nobody put in the contributions.
JOI: Would you describe PERSI’s overall investment approach as “conservative,” even in the context of other pension funds?
Maynard: I would call it “traditional.” We’re a traditional investment fund. We’re 70 percent at risk. Most people, when they say they are conservative, look more towards bonds and things of that nature.