The state pension fund rebounded this year achieving a 12. 8 percent return on its investments, which boosted the fund balance to $21.9 billion.

The fund, which ended last fiscal year with a negative 17.3 percent return increased its returns in fiscal year 2010 by broadly diversifying its assets in emerging market equities, high yield bonds, emerging market debt, and private equity, state Treasurer Denise L. Nappier said last week.

“The notable exception was commercial real estate, where high levels of unemployment and a subdued recovery in consumer spending impaired valuations,” Nappier said adding that property valuations were beginning to stabilize.
Nappier, who oversees the fund, said its net market value had increased by $1.5 billion over a 12-month period ending this past June 30, with $2.6 billion from investment returns offset by $1.1 billion in benefit payments.

“It is a foregone conclusion that the sobering investment performance in fiscal year 2009, coupled with the retirement incentive program and suspension of part of the State’s contribution to the State Employees’ Retirement Fund, will adversely affect the pension plans’ valuation—the basis for determining the State’s contributions to the pension funds,” said Nappier.

“The good news is that fiscal year 2010’s positive return will also be included in this valuation, and it will help to dampen the fiscal impact—albeit a small consolation given the enormous budgetary challenges facing our State in the ensuing fiscal year,” Nappier said.

The bad news is, “there is no asset allocation plan that we can adopt to wipe out the unfunded liability in a timely manner without taking on undue risk.”

An independent nonprofit organization, the Pew Center on the States, reported last winter that Connecticut has funded only 62 percent of its pension liability.

In response to the report, Gov. M. Jodi Rell signed an executive order creating the Post-Employment Benefits Commission, to identify the state’s unfunded pension liability.

The commission, which is still working on its final report, concluded last week that funding levels will continue to drop for the next four or five years, as the major losses experienced in 2008 and the first quarter of 2009 are incorporated into the report. The news from Nappier last week was heartening, but it wasn’t enough to off-set the downward trend.

The commission’s actuaries also concluded that the state will fall $86 million short in funding its 2011 pension liabilities. But even more worrisome is how woefully short it is in funding the other post retirement benefits, which includes retiree health care benefits. 

There is a $26.5 billion unfunded obligation for other post retirement employment benefits for state employees if the annual required contribution is made.

A November 2009 report by the Center for State and Local Government Excellence found that Connecticut’s unfunded other post retirement employment liability per capita was the third highest in the nation, behind only New Jersey and Hawaii.

Click here and here to read our previous reports on the state pension fund.