A hefty gain for pension funds State adds $9.1B, but still falls short Friday, July 20, 2007 • BY DUNSTAN McNICHOL • Star-Ledger Staff Riding the bull market on Wall Street, the state funds that bankroll pensions for 700,000 working and retired government workers gained 17 percent over the last budget year, adding $9.1 billion to the cash-strapped retirement system. The return is the funds' best performance since 1998, when the accounts posted a 22.7 percent gain amid the stock market's dot-com bubble. Last year's performance, reported yesterday at the monthly meeting of the State Investment Council in New Brunswick, left the accounts with a balance of $82.2 billion when the state budget year closed June 30. "It's a terrific performance on the division's part," Orin Kramer, chairman of the Investment Council, said. "They should be congratulated." Despite the hefty gains, the pension funds remain billions short of the amount actuaries say is needed to meet the retirement benefits already promised to the public employees and teachers enrolled in the system As of last summer, actuaries reported, the state needed to have $110 billion in hand to ensure it will be able to meet those future expenses. Along with improved stock market earnings, the pension system was bolstered by double-digit returns from the money the state placed in alternative investments, like hedge funds, and by a June 29 deposit of $1.1 billion, the first significant state payment into the funds since 1997. The gains mark the fifth straight year the funds have generated positive investment returns, following two years of losses during the stock market collapse of 2001 and 2002. Last year's gains also marked the fourth year in a row the returns have exceeded the 8.25 percent needed to match the rate state officials use to calculate the state's annual contribution into the system. "These investment returns are an encouraging sign as we take a three-pronged approach to making New Jersey's pension liabilities more manageable," said state Treasurer Bradley Abelow in a statement announcing the returns. Pension payments from the fund totaled about $6 billion last year, roughly double the amount paid out in 2000, Treasury Department records show. Since the stock market collapse, Treasury Department officials have spent several years moving billions of dollars out of traditional stocks and into alternative investments such as real estate, hedge funds and private equity. Last year, the Treasury Department report showed, about $4 billion was shifted into the alternative investments, which generated returns of about 13 percent. U.S. stocks, which make up almost 40 percent of the funds' assets, returned 20.83 percent last year, the report shows. Dunstan McNichol may be reached at dmcnichol@starledger.com or (609) 989-0341. © 2007 The Star-Ledger. Used by NJ.com with permission.