Some state retirement funds hurt by bank fall

By Joy Hampton The Claremore Daily Progress Thu Oct 09, 2008, 11:23 AM CDT

October 9, 2008 — The ripples from the fall of Lehman Brothers will affect the retirement systems for teachers, state employees and Rogers County employees, but should not touch individual benefit payments, the head of the Oklahoma Teachers Retirement System said this week.

“We certainly are going to be able to pay retirement benefits to those who retire now and in the future,” said Tommy Beavers, Executive Secretary of the Oklahoma Teachers Retirement System.

Beavers said the teachers system has $42 million worth of assets invested in Lehman Brothers, the investment bank that filed bankruptcy last month.

“We’re not sure that it would be a total loss,” he said. “We have $6.8 million in bonds that are a direct investment in Lehman. We would hope to get something out of that, that it wouldn’t be a total loss like it would be if it were shares of stock.

“The other part of the $42 million is $35 million that represents collateral in the JP Morgan Lending Securities Program that we’re part of. They had this $35 million in collateral with Lehman Brothers. It’s also bonds. We don’t know how much will be made good.”

Tim Allen, state deputy treasurer, said there are six Oklahoma pension systems, the two largest being the Teachers Retirement System and the Oklahoma Public Employees Retirement System, which includes Rogers County employees.

He could not comment on the smaller pension plans, but said the public employees plan also had investments in Lehman Brothers.

“They had some Lehman Brothers bonds,” said Allen. “They had $15.9 million.”

Retirement funds could be impacted, but individual retirement benefits will not suffer, Beavers said.

“The nature of defined benefit plans protect the worker or the recipient from these gyrations in the national markets,” he said. “That’s one of the advantages of a defined benefit plan verses a defined contribution plan like a 401k.

“In a DB plan (such as the Oklahoma systems), the retirement benefit is based on years of service, average salary, and the age of the person when they retire.

“There’s still a lot to be determined as to how much total exposure we have on the $42 million that might actually be represented as a loss to the retirement system,” he said. “Assuming that we did lose the whole amount, that would only represent one-half of one percent of the total portfolio.

“If we lost the whole $42 million, that would represent $4.94 for every thousand dollars that a teacher had invested in a retirement plan,” he said.

“While it’s a really significant loss in terms of dollars, it’s not going to impact our ability to pay retirement benefits.”

According to Beavers, there are 90,000 contributing members in the Teachers Retirement System and 45,000 retired members receiving benefits.

“Truthfully, we’ve lost more than that just in the downturn of the economy in the marketability of our assets. We’re not selling assets right now because the value of the companies we own are worth more than they’re selling for in this depressed market,” he said.

Allen said that all of Oklahoma’s pension systems — which include those for firefighters, law enforcement, judges and wildlife employees — are defined benefit.

“Each of those have separate boards for governing their operations and investments,” Allen said.

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Some state retirement funds hurt by bank fall

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