The magazine, Chief Investment Officer (CIO), recently published an article about North Carolina’s pension system based on a joint report between the John Locke Foundation and the California-based Reason Foundation.

The article’s author, Michael Katz, explains:

An analysis of North Carolina’s Teachers’ and State Employees’ Retirement System (TSERS) says that despite it being one of the best funded systems in the country, it has several weaknesses, such as overly optimistic return assumptions that “could jeopardize its fiscal health in the long run.”

North Carolina’s TSERS currently has nearly $10 billion in unfunded pension liabilities. Katz writes:

The foundation said its analysis of the causes of the growing unfunded liabilities found that underperforming investment returns are the main culprit of the growing pension debt and that the plan’s investment returns assumptions are overly optimistic.

In order to reach North Carolina’s goal return, the pension fund would have to take on riskier investments. But that would threaten the level of certainty the state has over employee pensions. Instead of taking on more dicey investments, the report suggests reevaluating to reflect a more conservative expected return. Katz writes:

In addition to employing more conservative assumptions, the report suggested TSERS should look into introducing retirement plan choices that include a risk-managed defined benefit pension, cash balance plan, or defined contribution retirement plan that will further reduce the risk of underfunding.

Read the full CIO piece here. Read the full joint report here, and watch the Reason Foundation’s Len Gilroy and Jen Sidorova discuss the report on Carolina Journal radio here.