The Public Employee Retirement Fund of Idaho has gone from 78.9 percent funded in October of 2010 to 87.7 percent funded as of last Thursday, fund director Don Drum reported to lawmakers on the joint budget committee this morning. The system’s unfunded liability has dropped to $1.5 billion, less than half the figure from June 30, 2009 that alarmed some lawmakers during this year’s legislative session.

Bob Maynard, the fund’s investment director, noted that the fund was 105 percent funded back in 2007, before the recession hit. “Prospects for the future are reasonable, but very fragile,” he said. Maynard told JFAC, “We are still in a hole, but the hole is relatively much shallower” than those for other state retirement funds. Funds typically don’t want to be 100 percent funded because that means the current generation is paying too much; 90 to 95 percent is the ideal, Maynard said. “We have a pretty modest plan structure. We don’t have medical. We have a healthy employee contribution going into the system. … We have consistent employer contributions … a relatively modest level of benefits, there’s no frills, no attempt to use this for economic development in the state, a small mandatory COLA. … There’ve been no permanent benefit increases in good times, and always required a reserve.”

He added, “From day one, all benefit increases that have been put into the system have been fully funded from contribution rates, unlike other retirement systems.”

What that’s meant for Idaho’s state retirement system is that it needs to earn only 3.75 percent above inflation to meet statutory benefit requirements, whereas other systems need 5 percent or more. Thus, a simple, conservative investment approach can work, and that’s what’s happened.