Vijoy Paul Chattergy, the new chief investment officer of the Hawaii Employees’ Retirement System, said current retirees shouldn’t worry about their benefits being shortchanged because of the $8.4 billion shortfall in the state public pension plan.
"They should rest easy that we are going to meet their obligations," said Chattergy, whose interim title was removed Nov. 1. "What they’ve worked for over the years should be fine to plan on. And for the folks who are a few years out to retirement or just starting out, that’s why the board went to the Legislature last year and reformed the benefit structure. Now we’re trying to build up the investment office so we will be able to meet their retirement needs going on into the future."
The ERS pension fund provides retirement, disability and survivor benefits to 113,282 active, retired and inactive state and county employees. But it had a funded ratio of only 59.2 percent at the end of its fiscal year on June 30, according to a recent actuarial report prepared by the independent Dallas-based firm of Gabriel Roeder Smith & Co. The funded ratio measures the percent that the plan is fully funded, meaning that sometime down the road it could run out of money — similar to the fears that threatened Social Security — unless steps are taken to shore up the system.
That doomsday scenario prompted the ERS, Gov. Neil Abercrombie and the Legislature to push for several changes. Among those implemented was an increase in the pension contribution amounts by both employers and new employees.
Chattergy said those people who say the ERS is taking too many risks with public money are mistaken.
"The investments are run relatively conservatively with an eye on our biggest objective: to fund obligations of the pension fund for the employees and thier beneficiaries into perpetuity," he said. "Given that as our objective, we use outside consultants as well as staff and the board to develop an investment plan that involves investing in various asset classes that are expected to produce a certain return over time. So we are investing for the long term. It took 30 years to get into the position we are now, and the actuary says it will take some 30 years to get fully funded again."
At the end of December, the pension plan had 32.4 percent of its $11.9 billion portfolio in domestic equity, with 23.2 percent in international equity and 22 percent in total fixed income, which includes both domestic and international investments. The remainder of the fund was in real estate (8 percent); private equity (3.7 percent); inflation-adjusted returns like bonds and timber (5 percent); covered option calls (4.6 percent), which are equities with downside protection; and other assets (1.1 percent). The ERS board has targeted an annual 7.75 percent return from its investments.
The pension fund became mired through a confluence of events through the years. Those included a previous law that required excess returns above the targeted percent to be returned to employers rather than kept in the fund; people living longer and thus collecting more benefits; increased volatility in the stock market; and pension spiking, which involved employees working a lot of overtime toward the end of their career to boost their retirement benefits. Pension benefits are calculated on an employee’s highest three years of compensation.
"Rather than focus on any one number like the unfunded liability (the $8.4 billion), you have to look at the direction we’re headed," Chattergy said. "We do hope we’ve hit a bottom, and in the years to come, given the changes in the benefit structure and investment opportunities, we hope that gap will close and we’ll be able to meet all our obligations on a going-forward basis."
Chattergy, 45, took over as interim chief investment officer July 6 after the departure of Rod June before taking on permanent status less than four months later. His salary set by the board of trustees is $200,000, which is up 14.3 percent from June’s authorized salary of $175,000. Chattergy’s interim CIO salary had been $110,000.
June returned to California in early July to become CIO for the Los Angeles City Employees’ Retirement System. Chattergy, who grew up in Niu Valley and graduated from Punahou School, had been an investment specialist with the ERS.
Before joining the state ERS, Chattergy worked for the East-West Center and FG Energy as an assistant project manager and consultant, respectively.
Before that he was a senior-level analyst with the hedge fund group at SPARX International Ltd., which is based in Hong Kong and Tokyo.
Chattergy also worked in New York City for Andrew Kalotay Associates, a boutique debt advisory and analytics firm, and at The Bond Market Association, a trade group for fixed-income broker-dealers.
