BRADENTON, Fla. — North Carolina Treasurer Janet Cowell said low returns for bonds and fixed income pose a challenge to North Carolina's $80 billion pension fund and individuals investing for retirement purposes.
"Fixed income is one of the highest risk places you can have your money and that means you're not going to have the money you need for retirement if you are putting your money in bonds," Cowell said. "Alternatives look increasingly attractive given the volatility of the stock market."
Cowell said the notion that bonds are a safe investment is outdated, and is calling on state lawmakers to allow more investment flexibility of pension funds.
"I'm still fighting the thought that a lot of people have…that bonds are low risk," she said. "The ultimate definition of risk is not being able to have enough money to retire comfortably. Using that definition, bonds are a very risky investment right now. As interest rates rise, the price of bonds will go down."
Cowell is backing legislation that would allow for higher-yielding investment flexibility. The state Legislature sets the pension fund's allocations.
In May, Senate Bill 558 passed, but was held up in the House Rules Committee and is now pending before the Committee on Finance.
In the first quarter of 2013, fixed income lost 0.5%, while the entire fund grew by 3.53%. Five-year projections for fixed income are 2% to 4%, according to investment experts. That poses a challenge for the pension fund to reach its 7.25% target rate of return, said Cowell.
The North Carolina Retirement System is the 10th-largest public pension fund in the country. It provides retirement benefits for more than 875,000 teachers, state employees, firefighters, police officers, and other public workers.
Currently, the top asset category of the pension fund is long-term fixed income, which includes investment-grade corporate securities, Treasuries, agency debt, and asset-backed securities.
"The math does not work to hit the target rate of return," Cowell said. "As a result, taxpayers would have to provide greater support of our pension system. That's why we need the House to act immediately so that we can diversify our portfolio and protect the retirement security of thousands of North Carolinians."