Wednesday, October 26, 2016

Nevada only pays $13 Million to run its $35 Billion pension fund!

A recent article in the Wall Street Journal is getting some attention - as it reports that Nevada only pays $13 million to run its $35 billion Pension Fund.  To put this in perspective; North Carolina pays 12 times as much, even after you take account of the size differences in the plan.

So how does Nevada keep costs so low?   The answer is simple: the plan is indexed.

Not only are the costs super low, the performance is pretty good.   Ron Elmer runs the numbers and finds that over 10 years, Nevada's plan earned 6.2% while NC earned 5.5%.   A difference of 0.7%.

Together with a few others (Ron Elmer, Andy Silton and SEANC), I've been advocating indexing for the NC Pension Fund for quite a while now and we've struggled to see any meaningful change.  But now we're now in a position to elect a new state Treasurer.

Recently - WRAL's "On the record" interviewed both candidates - you can see the video here.
(start at the 18 minute point).

Of the two candidates, I think that Dale Follwell understands the problems and has a realistic approach, so I'll be voting for him.

Just as a point of clarification (this came up in the video) - there is a huge difference between the funding of the plan and the performance of the plan.
  • A plan's funding level is based on how much money is put into the plan - basically - has the state honored its obligation to fund the plan?
  • A plan's performance is based on the investment choices that the plan makes.   Poor investment choices (and high fees) result in lower performance and can negative impact the funding level.  These choices are largely controlled by the Treasurer.