We are in the midst of an economic challenge that is historic in its scope.

—Governor Chet Culver, December 18, 2008

While individual investors worry about their plummeting 401(k) plans, there has been a dizzying drop in the value of pension plans that cover 80 percent of state and local government employees. Overall, the plans have lost more than 40 percent of their value in the past year.

—Ron Snell, National Conference of State Legislatures, February 2009

FY2009 public market returns
	Most segments of the investment markets experience historic losses last year. Investors across the globe lamented, “There’s no place to hide.”

Facing a Global Recession

In fiscal year 2009, IPERS faced the most difficult challenges in its history.

The worldwide financial crisis and the U.S. recession affected all investment markets. IPERS’ –16.27 percent investment return was the lowest in IPERS’ 56-year history. The negative return, while better than the median return of other similar retirement systems, will disrupt IPERS’ 30-year plan for funding benefits.

In addition, IPERS terminated an investment manager, Westridge Capital Management, upon learning of the federal fraud investigation of two company principals. IPERS wrote down the Westridge investment to 60 percent of its market value, based on the court-appointed receiver’s report. This expected loss represents less than 1 percent of the value of IPERS’ portfolio and is included in the calculation of the fiscal year annual investment return of –16.27 percent.

As the financial crisis unfolded, it became clear IPERS had to begin charting a new course to fund promised benefits. IPERS immediately responded to the recession by increasing its cash reserves to ensure benefits would be paid on time.

Second, IPERS joined with federal authorities and the Iowa Attorney General to hold Westridge Capital Management accountable and recover IPERS’ assets.

The large negative impact of the recession made it apparent to IPERS’ administration, Investment Board, and Benefits Advisory Committee that a long-range funding solution would be necessary. These groups know delaying action to improve IPERS’ funding outlook will only make the solution more painful and costly. Therefore, the Benefits Advisory Committee began studying benefit and contribution rate changes that will rebalance long-term funding.