In 2017, Harrisburg politicians figured out a way to keep the public eye off their historic mismanagement of the state’s pension funds until after the 2018 election cycle. They cleverly created one of those study commissions and ensured that it wouldn’t release its study results until after the 2018 election.
But that’s where the procrastinating ended. Taxpayers and government workers should be pleased with the fact that the Public Pension Management and Asset Investment Review Commission took its responsibilities very seriously. Members produced an exhaustive, deeply-researched report last month that lays out a clear prescription for fixing the funds and saving more than $330 million a year. Very significantly, they released their report to the public.
The chairman of the commission was Rep. Mike Tobash, (R., Dauphin). The vice chairman was Democratic Treasurer Joe Torsella, making this a truly bipartisan effort. Democratic Gov. Tom Wolf, who already endorsed the report, and Republican legislators should follow the commission’s spirit of bipartisanship and professionalism and tackle at least three of its recommendations as soon as possible.
First, the commission says the state must maintain its required contribution to the funds. The governor and legislature did that in this year’s budget — but a single effort is not enough. They should be committed to paying the full obligation every year. Failing to do so is how Pennsylvania created its pension crisis. Pension obligations balloon when payments aren’t kept up to date. This year, $3.2 billion — 10 percent of this year’s $32.7 billion budget — went into the pensions. Just four years ago, taxpayers paid $1.2 billion into the funds.
Secondly, the commission says the funds could save $2.1 billion over the next 30 years if the state merged the funds’ investment offices. Right now, SERS, the State Employees’ Retirement System for state workers, and PSERS, the Public School Employees’ Retirement System for school workers, have separate investment offices. Not only would the funds save $21 million in the first year, but their combined $80 billion in investments would command much more clout on Wall Street than the funds now have.
Thirdly, the commission calls for publicly disclosing how much money Wall Street is making from investing our money. PSERS disclosed it paid more than $1 billion in compensation to Wall Street firms in 2016-2017. SERS has not and says it can’t because it has nondisclosure agreements with its investment managers. That’s just nonsense. No government entity responsible for our money should be keeping secrets. SERS should renegotiate those contracts and eliminate nondisclosure agreements.
The pension boards can start working on improvements even before the politicians do. They should subject their investments to frequent stress tests showing just how effective those investments are, and the funds should release that data to the public and retirees.