The big retirement investment

Investing money is a daunting experience.

In the past you could put your money into a few safe, respectable stocks, keep them for years, enjoy regular dividend checks and sleep peacefully.

Those days are gone. Whether you manage your investments yourself or hire a financial advisor, the market is confusing and complex. The choices are bewildering and conditions are constantly changing.

Imagine if you had to do this for almost $16 billion of other people’s pensions.

That’s the responsibility of PERA, New Mexico Public Employee Retirement Association, which manages the pension fund for state and local government retirees. (This fund is separate from the state’s funds, and from the fund for education retirees.)

PERA pays more than $1 billion a year in pension benefits, with most beneficiaries still living in New Mexico. It’s a major contributor to the economy of our communities. If you or a family member is a current or future PERA retiree, the fortunes of this fund affect you.

For years I have voted in PERA board elections, but I never asked exactly what their responsibilities were or how PERA investment decisions were made — until now.

Here’s what I learned from executive director Wayne Propst.

Governance of PERA’s investment policy is done by the elected board, professional staff, consultants and money managers. There’s been a change recently in how responsibility is divided.

The board oversees the entire process. The board has the power to hire and fire the executive staff. The board also sets the “asset allocation” – the formula for portioning out assets among different types of investments: US or international, reliable dividends versus growth potential, stocks or bonds, and so on. In the high-stakes gamble of global investing, asset allocation is educated guessing which sectors of the economy will make the most money. It is considered the most important factor in determining the success of the fund.

Within this framework, someone has to pick specific assets. PERA selects money managers – possibly 100 or more — and gives each manager some of its portfolio to invest.

The recent change is who picks the money managers.

The professional investment staff, with help from consultants, reviews money management firms and makes selections after extensive analysis, which may involve months of review.

Until recently, board members participated in the selection, including going on trips with staff to visit management firms.

Recently a majority of board members decided to take themselves out of those decisions and leave them to the staff and consultants.

John Melia, an Albuquerque firefighter, is chair of the board’s investment committee.

“In the past it was simpler,” he said. “You did not need experts to reach the numbers you needed. Nowadays it’s hard to meet goals in the stock market. We should leave that job to the experts. We need full-time dedicated people to manage these investments.”

Not everyone agrees with this change. The decision was not unanimous and there has been some controversy.

But PERA has been underperforming compared to its peers and failing to meet its own benchmarks. Over the last 10 years, average total growth has been almost a percentage point below the 4.96 percent growth goal the board set for itself. This jeopardizes the long-term future of promised retirement benefits for thousands of state and local government retirees. The threat of future cuts to benefits is distant but never disappears.

The new approach makes sense to me, but I’m not an expert either. If you are a current or future PERA retiree, you may want to pay attention yourself. The governance information is public and on the website. The annual meeting will be September 27.

Or you could join Retired Public Employees of New Mexico (rpenm.org), an organization of retirees whose primary purpose is to safeguard PERA retirement benefits. Dues are only $30 a year and you will find a group of people who are paying attention with you.

Triple Spaced Again, © New Mexico News Services 2018

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