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New Legacy Fund formula cut distribution to $687 million; lawmakers press for earnings transparency
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Summary
The Retirement Investment Office reported that the statutory change to calculate Legacy Fund distributions — 8% of a five‑year average — produced a $687 million distribution, down from roughly $1.075 billion under the prior realized‑earnings method.
The Retirement Investment Office said the formula used for the most recent Legacy Fund distribution produced roughly $687 million, a significant reduction from the $1.075 billion figure that would have been distributed under the old realized‑earnings method.
"The statute regarding the distribution is Century Code section 54‑27‑32," Adam Ottison, chief financial and operations officer at the Retirement Investment Office, told the Government Finance Committee, and he explained the office calculated the distribution as 8% of the five‑year average of the fund’s ending balances (2020–2024).
Ottison said the five‑year average was roughly $8.5 billion; applying the statutory 8% produced the approximately $687 million distribution. He told the committee the Legacy Fund returned about 25% total last biennium and that realized earnings were about $1.075 billion, while total (realized plus unrealized) returns were roughly $2.1 billion.
Jody Smith, executive director of the Retirement Investment Office, noted substantial earnings were retained in the fund after the distribution. "Roughly $1.4 billion of earnings, including unrealized gains, remains in the Legacy Fund from this last biennium," Smith said, and she told members that the timing of transfers can materially affect how much income remains available to grow principal.
Senator Beckettall pressed whether the committee could receive reports showing how much investment income is returned to principal versus distributed. Budget Section staff said RIO tracks that information and that the committee can request a future presentation from Rio to break out realized versus unrealized earnings and to show how much net income was retained in principal.
Why it matters: the statutory change moves the distribution basis away from realized earnings to a smoothed five‑year market average; that reduces short‑term payout volatility but also changed the current biennium’s payout size. Committee members asked for more granular reporting and for RIO to consider presenting cumulative and year‑by‑year comparisons so legislators can see how retained earnings, realized gains, and unrealized gains interrelate with distribution mechanics.
What’s next: staff said they will invite RIO back with a detailed comparison of the old and new formulas, historical distributions, and a breakout of realized versus unrealized returns and the amounts retained in principal.
