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Pension fund investment loss brings a call for heads to roll

By Kevin Dayton; Star Advertiser; January 6, 2017
Pension fund investment loss brings a call for heads to roll

House Finance Chairperson Sylvia Luke (Star Advertiser 2015)

Star Advertiser

House Finance Chairwoman Sylvia Luke says someone in the leadership of the public employees pension fund should resign after the fund posted what she called a “pathetic” investment return of negative 1 percent during the fiscal year that ended June 30.

Luke, who helps shape the state budget and is one of the most influential members of the state House, asked state Director of Finance Wesley Machida during a budget hearing Thursday what he would do if his personal portfolio managers generated a loss of 1 percent last year.

Then, she answered her own question for him: “Yeah, you would fire them,” she said.

She added, “I think somebody should resign, because that is really, really pathetic.”

The $15 billion Employees Retirement System is the pension fund for about 119,000 active and inactive state and county employees and retirees, and has an unfunded liability of $8.77 billion.

“We’re not talking about 2008, and we’re not talking about 2009 where we had a huge recession,” Luke said. “We are talking about a steady growth economy, not just here in Hawaii, but nationally, and negative 1 percent is not acceptable.

“If it’s the board of directors making these decisions, maybe Mr. Machida, you as part of the Governor’s Office should ask these guys to resign because you guys are adding to the unfunded liability,” she said.

Luke said she wants the ERS staff to return to lawmakers with a new strategy for earning better returns.

ERS Executive Director Thomas Williams told Luke the negative 1 percent “reflects the capital markets.” He said public pension funds that have diversified assets generally had returns last year of between negative 2 percent and positive 2.5 percent depending on the makeup of their investment portfolios.

The 2016 loss “is a one-year return in a much longer investment cycle, and so the pension funds tend to invest over the long haul,” he said.

The Hawaii fund improved its performance in the first quarter of this fiscal year, earning 4.5 percent, or nearly $1 billion, from July to September.

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