How the pension fund works

Advertiser Staff

The $8.4 billion state pension fund supports the retirement benefits of thousands of state and county government retirees.

It also guarantees future retirees their benefits. The ERS has about 93,000 beneficiaries.

Where the fund gets its money:

• Thousands of employees pay in a percentage of their salary based on their position.
• County and state governments contribute. The required amount is determined by an actuary, an independent financial expert who weighs the fund's financial strength and calculates how much new cash ERS needs to remain healthy. In recent years, the required contribution has been several hundred million dollars.
• The employee and government contributions are invested in stocks, bonds, mortgages and other financial instruments, which historically have generated tens or hundreds of millions of dollars in income.

How the fund loses money:

• The fund pays out hundreds of millions of dollars in retirement benefits each year. This amount is increasing along with the number of retirees.
• The fund occasionally loses money on its investments. ERS recently suffered through a poor stretch, losing several hundred million dollars as the stock market collapsed in 2000 and 2001.
• The state occasionally takes back pension profits. In the late 1990s, lawmakers voted to take back all pension investment returns above 10 percent. The money was used to offset state and county contributions, meaning the government put in about $350 million less than required. This practice, combined with increased benefit payments and poor investment returns, caused a $1.5 billion drop in ERS assets and spawned last week's class action lawsuit, which claims the practice is illegal.