Final pension commission report aims for three times the required savings with centralized investment office, transparency

Final pension commission report aims for three times the required savings with centralized investment office, transparency

Author: Stephen Caruso/Thursday, December 20, 2018/Categories: News and Views

Taking 18,000 pages of notes over seven months of work, the state’s public pension review commission issued seven suggestions Thursday that they hope could save Pennsylvania as much as $10 billion over the next 30 years.

The commission, led by chair Rep. Mike Tobash (R-Schuylkill) and vice-chair State Treasurer Joe Torsella, was mandated by the 2017 pension bill.

Among its suggestions were a central investment office for the state’s two pension systems, consistently full pension contributions from the state and added transparency measures from the State Employees' Retirement System and the Public School Employees' Retirement System.

But the resulting suggestions were not meant to be an indictment of any past behavior from either the retirements systems or any other past choices, according to Gov. Tom Wolf, who approved of the suggestions as the state tries to come to grips with its pension costs.

“This is not an attempt to play the blame game,” Wolf said.

Paying for the state’s pension obligations to the nearly 800,000 combined state retirement system members, from Harrisburg bureaucrats to Scranton school teachers, costs 10 percent of the budget each year. The state only has 60 cents for each dollar committed to employee retirements.

To address the obligations, the commission suggested more public reporting from the boards, a focus on indexed instead of active investment, reducing the state system’s exposure to illiquid assets and maintaining full payments into the retirement system by the commonwealth.

Some of the changes will also require legislation from the General Assembly to mandate public reporting of all investment expenses and mandating stress tests of the pension plan every year.

One of the largest suggested changes was creating one central investment office charged with using the combined assets of the employee and teachers retirement systems to create in-house investment expertise for the state in judging money management.

The change could not, however, entirely get rid of the two separate pension boards. Tobash said it was not realistic in the short term to achieve savings to merge them, and they could still have separate investment strategies.

That one change is expected to save $21 million in its first year, and $2.1 billion over 30 years. The commission was charged with finding $3 billion in total savings in the whole system.

Tobash said he planned to meet with House Republican leadership Thursday to discuss the findings.

Many of the changes took aim at high fees from money managers that Torsella, Tobash and other state politicians like Auditor General Eugene DePasquale have criticized as a waste of taxpayer money.

Neither SERS or PSERS have reviewed the report ahead of its release and were unable to comment on specifics. But both systems have claimed to have taken steps towards transparency and to reduce fees over the past year.

“As we testified at the Commission hearing in October, SERS strives to be as efficient and cost-conscious as possible in its investments an administrative endeavors,” SERS executive director Terril Sanchez said in a statement.

In his own response, House Minority Leader Frank Dermody (D-Allegheny) broadly concurred with the report's conclusions, but did not take as harsh of a tone on the two systems' payments of fees, which he said were necessary to extract additional gains for pension recipients.

Instead, he called for a constitutional amendment preventing the General Assembly from borrowing from the pension system to balance the state budget.

“This conversation is perhaps more important than the fee discussion, and we hope the Republican majorities in the House and Senate continue to work with us in that direction,” Dermody said.

As for accomplishing all of the commission's goals, both parties acknowledged it would require a lot of bipartisan cooperation between the legislature, the administration and the retirement systems. 

On the chances it could be done quickly, Torsella quipped that “hope springs eternal.”

Stephen Caruso is the Harrisburg bureau chief at The PLS Reporter. Have a question, comment or tip? Email him at stephen@mypls.com or call at 845-891-4306.

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