A report by New Mexico’s Legislative Finance Committee said the state’s permanent funds and the Public Employees Retirement Association and Educational Retirement Board pension funds fell 30.1% last year, to a combined asset value of $26.5 billion from $37.5 billion at the end of 2007.

The steepest decline came in the final three months of the year, as the funds dropped in value by $5.7 billion, or almost 18%.

A spokesman for the State Investment Council, which manages the permanent funds, attributed the poor performance in the fourth quarter to a hedging strategy that helped mitigate investment losses but tamped down potential gains.

The permanent funds are the source of annual payments to public schools, other state institutions, and general government operations. Future payments, which are based on average fund values over five years, could be reduced as a result.

The pension program for state and local government workers fell 32.7%, to $8.9 billion from $13.2 billion.

The value of the pension fund for educators dropped to $6.6 billion at the end of 2008 from $9.4 billion in 2007, down almost 30%.

The Legislative Finance Committee said the 10-year return on investments by the public employee fund fell to 3.19% and the educational retirement fund slipped to 1.8% . The funds need to average an 8% return on investments to provide the promised benefits to future retirees, the report said.

“The poor returns delivered thus far by the pension funds raise significant concerns as to their funding status,” it said.

The Legislature passed a law this year that established a task force to study the state’s pension programs. The group is to make recommendations for improving the programs’ operations by October 2010.

The value of the land grant permanent fund fell 27% during the year, to $7.8 billion from $10.6 billion. The severance tax permanent fund declined by 32%, to about $3.2 billion at the end of 2008.

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