News: Quick Takes

Folwell says prudent management has helped state pension weather economic jitters

State Treasurer Dale Folwell. (CJ file photo)
State Treasurer Dale Folwell. (CJ file photo)

Fears of a global economic slowdown, fueled in part by the coronavirus outbreak, took a $4.2 billion chunk out of North Carolina’s state pension plan.

The coronavirus has sent stocks tumbling worldwide. North Carolina’s pension plan is more conservatively managed than most, so it slid only 3.9% from its unprecedented $107 billion peak in mid-February.

“The N.C. pension plan is one of the safest and most secure plans of its type in the U.S.,” State Treasurer Dale Folwell said during his monthly “Ask Me Anything” teleconference Tuesday, March 3.

The end of February sent the stock market to its worst week since the 2008 financial crisis. The Federal Reserve on Tuesday announced the first emergency interest rate cut since the Great Recession, but the ensuing market rally lasted only 15 minutes. Stocks and bond yields then resumed their fall.

Also Tuesday, North Carolina confirmed its first case of COVID-19. There are 92,821 confirmed cases, 3,160 deaths and 48,226 recoveries, according to a live data map by Johns Hopkins University’s Center for Systems Science and Engineering as of 6:46 p.m.  

As of Tuesday, some 121 Americans have been infected, and nine have died, five of whom lived in a nursing home in Washington, where a resident of Wake County was exposed. The person is reportedly doing well and is in isolation at home.

Global panic over the coronavirus dragged the state pension plan’s equities down 11% from their mid-February peak. But North Carolina’s whole plan emerged with only a 3.9% drop from its peak in February, Folwell said. 

Decades of conservative management have protected the state’s pension investments from unexpected market jolts. 

“When the stock market zooms higher, we don’t perform as well as others do,” Folwell said. “And when the market goes down, as it did the last few weeks, we don’t lose as much as other plans.”

North Carolina’s state plan is “especially well” prepared to weather another recession, according to a stress test by Pew Charitable Trusts. 

“We do not manage this plan in anticipation of viruses and volatility that none of us have ever seen in our lifetime,” Folwell said. “We don’t gamble with the money of those who teach, protect, and serve, and we don’t have a crystal ball. This cash cushion kept the plan from losing billions of dollars more than it would have.”

Folwell worries a worldwide slowdown from the coronavirus could hurt the revenue of the plan coming from N.C. residents and the state. 

“We’re most vulnerable if the worldwide supply chain … starts to [have] big disruptions,” Folwell said. “Anything that interrupts business activity or has a negative impact on N.C., the U.S., or the world in general could have an impact — not just on the value of stocks but also the revenues coming in.”

Folwell said he would not increase employee contributions to the plan.

“What happens in the rest of the world, now that [COVID-19 has] broken out beyond China is an open question,” said Joe Coletti, senior fellow at the John Locke Foundation. “Part of why it’s a crisis right now is that we don’t know what its impact will be. If it’s not that bad, the market recovers, and everything goes back to normal.”