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Aug 8 (Reuters) - Connecticut's two main pension funds had a negative rate of return of 0.9 percent in the 2012 fiscal year, which reduced their total assets to about $24 billion, a state official said on Wednesday.
The negative return for the two funds, one for teachers and one for other state employees, contrasts with the 21 percent return for fiscal 2011, which was the highest return in 23 years.
Along with many other states, from California to New York, the results for Connecticut's pension funds were well below their assumed rates of returns.
Ben Barnes, secretary of Connecticut's Office of Policy and Management, said by telephone that the expected rate of return is 8.5 percent for the teachers' fund and 8.25 percent for the other employees.
Continued underperformance could force states to increase contributions, which would further strain budgets already under pressure from the fragile economic recovery.
Barnes added that the funds' investment council planned to modify the current mix of assets in its investments. Equities had a negative return of 5 percent, while the return on fixed income topped 7 percent. Alternative investments, a broad category that includes hedge funds and commodities, rose more than 5 percent.
Barnes said the new two-year budget plan that Governor Dannel Malloy will unveil in 2013 for the fiscal year that starts on July 1 might include a provision raising the annual pension contribution by around $125 million.
"We would like to include that in the budget we will present to the General Assembly in the spring....We face a number of fiscal challenges and we're working to find the best mix," he said.
This would accelerate the governor's effort to compress future contributions by paying in bigger amounts earlier. The state boosted its annual contribution by $100 million, bringing the total to more than $1 billion, in the current budget.