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Wash. government pension fund took big hit in 2008

OLYMPIA — Washington’s public employee pension fund lost about a fifth of its value in 2008, bumping up the unfunded liability for the oldest pension plans and likely requiring workers to pay more into the system.

Benefits paid to retirees aren’t in danger. Like all governments, the state is legally required to pay workers the amount promised during their working years. But a healthy balance in the pension system’s investment fund makes it easier to meet those obligations.

The global economic slump has taken a large toll on the pension system’s investment fund. The balance declined from about $57 billion in September to $51 billion in December, The Olympian newspaper reported Friday.

Since its peak in September 2007, the fund has lost almost $15.6 billion.

Washington State Investment Board Director Joe Dear said the worldwide credit crisis has damaged virtually all the board’s investment options.

“Credit in our economy is like the air supply. And when the air supply is poisoned, there is no place to hide,” Dear told state lawmakers Thursday.

In recent years, the state’s pension investments have doubled the expected 8 percent return rate. Extraordinary losses in the past 15 months, however, have dropped the average return for the past decade to 5.4 percent.

At the same time, state officials are trying to bridge a projected budget deficit of about $6 billion over the next 21/2 years. Gov. Chris Gregoire has suggested changing the way Washington calculates pension fund payments — a move that could save $386 million now, but require more investments later.

The recent market losses aggravate two factors for the pension system, said Matt Smith, a state actuary who monitors the pension fund.

Most importantly, Smith said, the losses spur a significant increase in the unfunded liability for the oldest pension plans. Employees also will have to pay more into the newer pension plans over the next several years to recoup the losses, Smith said.

Dear told lawmakers that problems will continue until credit markets and housing prices return improve. But he stressed that the investment board’s long-term strategy can account for market fluctuations over time.

“It’s a difficult situation, but if we have the courage of our convictions, we can get through this,” Dear said.



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