Despite Market Loss, Pension Funds Called Safe

Officials of California’s State Teachers Retirement System said Wednesday that the giant pension fund lost $3.6 billion in the stock market’s steep decline earlier this week, but they insisted that the fund remains strong and benefits are protected.

At the same time, a top investment officer of the Public Employee Retirement System, which covers 700,000 active and retired government workers, boasted that his fund had recaptured about $2 billion of more than $4 billion it lost on Monday by jumping back into the market as it rallied over the last two days.

“We became more bullish to take advantage of what (the rising market) represents,” said Jed Maxwell, principal investment officer of the public employees fund.

Officials of the teachers pension fund had been reluctant to divulge their investment strategies and had refused to disclose their losses until Wednesday when it became clear that the market was continuing its rebound.

In a statement held back for two days, chief investor Thomas Flanigan said he and other teachers fund officials had anticipated problems in the stock market and stopped buying stocks last November.

Even so, the fund continued to keep about 60% of its $23.7-billion portfolio in the stock market.

After the close of trading on Monday, officials said, the value of the teachers pension fund had dropped to $9.7 billion from the $13.4-billion value reported last September.

More than 400,000 teachers belong to the State Teachers Retirement System, making it the largest teachers retirement system in the United States.

Flanigan characterized the $3.6-billion loss as a “reduction in the paper value” of the fund, since the stocks were not sold during the downturn and remain a part of the current portfolio.

“We’re not panicking, we’re assessing the market,” Flanigan said, noting that he does not foresee the teachers system buying more stock until the Reagan Administration and Congress act to stabilize the market, particularly by reducing the federal deficit.

After halting purchases of stock last November, the teachers fund began a more conservative investment course, according to Flanigan, placing about $1.5 billion in treasury notes. He said he expects that to continue for the near future.

“We’re not plunging back into the stock market,” he said. “We’re taking a very defensive course.”

At the University of California, Associate Treasurer Patricia Small said the university’s $10.5-billion pension fund lost $2 billion in the stock market plunge, but regained about $500 million from new stock purchases during Tuesday’s and Wednesday’s rallies.

Because the fund already had a $3.5-billion surplus, Small said, the loss will not hurt the retirement plan or reduce benefits paid to current or future retirees.

Benefits payable to members of all three retirement systems--public school teachers, university faculty and public employees--are not entirely dependent upon the proceeds of the funds’ investments since all three are guaranteed by the state. If the funds default, the Legislature is required to distribute pension money directly from the state treasury.

Representatives of all three funds also say the recent losses should have no effect on contributions paid by employees or the state.

Maxwell, of the Public Employees Retirement System, said the pension system’s stock holdings still will produce “very sizable profits” compared to past years. As the market began rising in the spring, Maxwell said, Public Employee Retirement System traders began selling stocks, anticipating that the five-year bull market would end.

During the first nine months of the year, the fund’s stock holdings increased in value from about $14 billion to $20 billion, he said. At the worst, Maxwell added, the market’s plunge on Monday set the system back to where it was at the first of the year.

“We’re long-term investors and for that reason we have to live through cycles,” Maxwell said. “We’re extremely sound, very well financed and even in our (stock holdings) we are still ahead by years.”