Utah Retirement Systems rate of return on investments

URS pension funding ratios (percentage)

SALT LAKE — Local Utah governments can expect to pay higher fees to cover pension costs if the Utah Retirement Systems’ investments don’t earn at least 7.5 percent each year.

The Utah Retirement Systems, which runs the combined pensions for all cities with employees earning retirement benefits, collects fees from cities and towns based on an assumed 7.5 percent return on investments, said Robert Newman, the fund’s director. If investments fall below the 7.5 percent growth rate, then the Retirement System will increase fees, he said. The URS covers roughly 104,000 pension holders.

While the fund has averaged an 8.6 percent return since 1990, that growth has slowed since 2001, averaging 5.9 percent annually. It was made worse during the 2008 stock market drop.

“Since the losses in 2008, we’ve had to increase the contribution rate,” Newman said in a phone interview. “Assuming we are able to earn what we are projecting with increased contribution rates, over time those rates will start to go down again.”

URS raised rates this year after losses in 2011 when investments rose only 2.9 percent.

Salt Lake City’s fees to the Utah Retirement Systems were raised by $5 million this year, bringing its total contributions to $15 million, said Gordon Hoskins, finance director for Salt Lake City.

URS offers eight different benefits systems, each with employee contributory or non-contributory plans, Newman said. Most of the more than 104,000 people in the retirement system are part of a non-contributory plan.

Gaps in pension funding continue to widen as fees for municipalities go up.

As of 2011, the URS’ portfolio will only cover 78 percent of its future expenses. That’s down 15 percent since 2002, according to the Retirement Systems’ annual financial report. That means the state has $5.8 billion in unfunded pension liabilities.

A healthy system should have at least 80 percent of liabilities funded, according to a June 2012 study from the Pew Center on the States covering widening pension gaps.

Utah plans to have a 100 percent funding ratio by 2035, Newman said.

Some experts question whether the Retirement Systems’ investment portfolio would be better suited being managed by an outside company.

“Utah retirement system has outperformed the S&P 500 over the past 20 years,” Rick Evans, a professor of economics at BYU, said in a phone interview. “But, the real question is: Could the Utah Retirement System be outsourcing their portfolio management to some mutual fund manager out there.”

Preliminary data in an ongoing study that Evans is conducting on the Retirement Systems and its portfolio performance shows that a “large fraction of firms outperform URS in terms of expected return versus risk,” Evans said.

Evans declined to give details on data because the study is ongoing.

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