WA Cares ‘Relatively Higher Risk’ Investment Policy Approved | Washington
(The Center Square) — The Washington State Investment Board has voted to approve an investment strategy for the struggling WA Cares long-term care program.
WSIB Chief Investment Officer Christopher Hanak said the program is “at the point where we are ready to begin managing the assets of this important new fund.”
He then spoke about the general investment strategy of WA Cares.
“A review of the program indicates that it will have a stable source of funding, a low payout rate and a long investment horizon,” Hanak said at Thursday’s press conference. virtual meeting. “This is a program that has the ability to be invested with a relatively higher risk and return profile. We finally recommended a portfolio whose benchmark is based on the Bloomberg US Universal Index.
The Bloomberg US Universal Index covers taxable US dollar-denominated bonds that are rated investment grade or high yield.
“The team’s modeling predicted that the program would maintain positive balances for at least four decades under the proposal,” Hanak said.
Given the current state of the economy — skyrocketing gas prices and the highest inflation in 40 years — he acknowledged it was best to take a long-term view of the process.
“As we see in the current environment, returns are often volatile in the short term but tend to even out over longer periods,” Hanak said.
The investment strategy will be subject to periodic reviews.
“As with our other investment programs, we plan to review the policy on a four-year cycle, unless a review is warranted sooner due to changes in the program,” Hanak said. “Examples that might warrant review include significant changes to program eligibility or the passage of a constitutional amendment allowing equity investments.”
The mention of equity investments refers to the fact that the program’s financial prospects could be improved if it were allowed to invest in equities, which offer a higher average rate of return.
This change is something that voters in Washington rejected at the polls in November 2020 by defeat Absorbed Joint Senate Resolution 8212, a constitutional amendment to allow Long-Term Care Trust Fund money to be invested in private stocks. The vote was 54% to 46%.
Being able to invest funds in the stock market would almost certainly help the finances of the program.
According to a December 2020 report commissioned by the state’s Office of the Actuary, the WA Cares fund is expected to run out of money in just over 50 years, unless the legislature slightly increases the 0.58% payroll tax.
Investment limits are just the latest challenge facing a program that began in 2019 when Washington became the first state in the nation to adopt a long-term care insurance program, known as the trust program. long-term services and support.
The WA Cares payroll tax – 58 cents on every $100 earned – was supposed to take effect Jan. 1, but that plan was partly derailed by lawmakers concerned that people paying into the program would not be not eligible to receive benefits.
In December 2021, Governor Jay Inslee announced that the payroll tax would be delayed until April unless the legislature steps in to set a new date. The governor later announced he had no authority to delay the tax, saying employers were still legally obligated to pay the state.
Earlier this year, the Washington State Legislature passed a bill delaying the implementation of WA Cares until July 1, 2023. Inslee signed the legislation.
One board member – State Senator Mark Mullet, D-Issaquah – expressed some concern about the future of WA Cares.
“Is this bill really going to end up going online?” He asked. “Because obviously now it’s been postponed to July 1, 23, and I think that’s going to be a huge talking point in the next session about what form the program will take.”
If so, lawmakers might have another shot at securing a constitutional amendment allowing private equity investments, according to Mullet.
“And after that was resolved, I think you would have another race,” he explained. “If the program remains intact, I think you will definitely have another attempt to provide the flexibility needed for a smarter investment strategy. But I think it’s a flip side of how the program survives. the next session of 23. »