Investments alone likely won't save pension system

Higher returns alone likely aren't enough to save Montana's beleaguered pension system, the state's investment director said.

Board of Investments executive director Carroll South said the pensions would need to earn a return that is far above historical levels to fully recover losses. Pension investments lost nearly 21 percent of their value last year.

In order to simply meet their ongoing obligations, the system needs to earn about 8 percent on investments. Returns far higher than that would be needed to recover from the historically large losses of the past year.

For instance, the teachers' pension system would need to earn nearly 12 percent on investments over the next 10 years to recover and meet ongoing obligations.

South told the full board in a presentation this week that such performance is unlikely, but not impossible. He said a good investment year this year will help a lot.

"I don't think we can invest our ways out of this hole," South said.

A legislative interim committee is studying ways to revise the pension funds to hold down costs.

However, the state is prohibited by law from making any changes in the pension benefits of current state employees and teachers. Any changes, if enacted, would apply only to new employees hired after the effective date.

A recent report showed that pension system projected shortfall in 30 years tops $2 billion. A year ago that unfunded liability - or projected shortfall - was a little more than $1 billion.

Projecting the shortfall helps determine how much money needs to be dumped into the system to make sure there is enough to pay for future benefits.