News: Quick Takes

Folwell will push pension solvency plan with Senate leaders

State Treasurer Dale Folwell hopes the General Assembly will build on its recent boost in the state’s Rainy Day Fund with a plan to make state pensions and health benefits more solvent.

House Bill 651 would reduce tens of billions of dollars in long-term debt by creating an Unfunded Liability Solvency Reserve fund. The measure passed the House on a 108-4 vote, but stalled in the Senate. Folwell hopes the Senate will reconsider it when the General Assembly returns Aug. 3. He plans to meet with Senate leaders before then.

Speaking to reporters Tuesday during his monthly Ask Me Anything teleconference, Folwell said the solvency fund is a “carry forward” of the state’s Rainy Day Fund. North Carolina now has a record $1.8 billion in that reserve.

Folwell said bond rating agencies look favorably on dedicated reserves. They allow states to survive economic downturns without raising taxes or cutting services.

Winston-Salem and Charlotte foresaw unfunded liability issues decades ago, and started municipal solvency funds, Folwell said. The state should do something similar.

Folwell said bond rating agencies take unfunded pension and health liabilities seriously, and he plans to address the matter to protect North Carolina’s “AAA” bond rating.

Folwell also hopes to perform an asset liability study in 2018. Among other things, it would determine the actual rate of return pension investments are producing.

State law assumes a 7.25 percent rate of return. But when Fitch affirmed the state’s “AAA” bond rating, it concluded the state’s pension returns were in fact 6 percent.

In other areas, Folwell said:

  •  The state plans to refinance $600 million in debt, attempting to reduce the interest rates being paid.
  •  He continues to review $10 billion in pension assets that were assigned to outside investment managers but never invested. Some of that money has been idle for up to three years, and hasn’t generated any growth.
  •  The state will start relying more heavily on indexed funds and other “passive” investments, rather than investment management firms to handle pensions and other investments. Meantime, the state will try to get independent analysts to determine the value of state investments. “We have to take someone else’s word on what they’re worth,” Folwell said, and often the information comes from the managers handling the investments.
  •  The state probably did not lose as much as it thought originally as a result of the bribery and political kickback scandal involving Petrobras, Brazil’s state-controlled oil company. The corruption case caused Petrobras’ market value to plummet. An investment fund manager placed North Carolina’s money in Petrobras securities. Folwell said this is another reason he wants to move more assets to indexed funds.
  •  Next week, Folwell expects to make “a very positive statement” about renegotiating the State Health Plan’s contract with United HealthCare for the Medicare Advantage program affecting about 150,000 members of the plan who are 65 and older.
  •  More than half of the 193,000 people facing an eligibility audit for dependent care under the State Health Plan have submitted documents, with results expected within four months. The company performing the audit said it expects between 3 percent and 5 percent of people enrolled on the plan are ineligible, which mirrors national averages. He wants to identify people who aren’t eligible to get the benefits before October, when the next open enrollment period starts.