PA pension to reduce 'alternative' investments, add stocks
Will cut 'alternatives' and buy equities as funding gap grows
PA pension to reduce 'alternative' investments, add stocks
Joseph N. DiStefano
The Pennsylvania State Employees' Retirement System has a problem: Thanks to overpromising and underfinancing by the state's elected leaders since the 1990s, it has around $27 billion worth of investments on hand to pay $42 billion worth of pensions (calculated at present value).
That means Pennsylvania taxpayers will have to pay a premium of 11.5 cents on every dollar paid to General Assembly members, State Troopers, social workers, corrections officers and other state employees in the current fiscal year, to keep the system moving toward solvency under current state guidelines.
That surcharge, close to zero in the mid-2000s, is expected to keep rising unless investment markets suddenly improve a lot. (That's in addition to the payroll deductions state workers also pay into the fund.)
To try and close the gap, SERS spent $170 million last year on professional hedge fund, buyout fund, venture capital fund, and other private investment managers, and $23 million on publicly traded stocks and stock fund managers, among other expenses, according to its annual report. How'd that go? In the first quarter of 2012, stocks returned around 13% -- while those expensive private investment returned under 4%, according to a report SERS released yesterday. (Sometimes it's the other way around, though it's hard to know what many private investments are really worth, since they rarely change hands.)
SERS said today it plans to reduce its "alternative investments" to 16 percent over the next 10 years, from a five-year target of 24 percent. Meanwhile stock holdings will rise to 38%, from 32%, while bond investments also rise.
SERS isn't doing this to cut costs or boost returns, but to improve its "liquidity," according to the new Strategic Investment Plan.
That means SERS needs to be able to sell investments faster as it cuts more checks in the years ahead.
hedge fund investments should be zero. they rarely outperform the S&P 500 over time, and the fees are astronomical...typically 2% to manage the money, and 20% of any profits.
rather than hoping for a miracle (i.e., outperformance on investments), the only real options are either (A) increasing contributions to the pension plan through higher taxes or lower spending elsewhere or (B) taking the common-sense approach of moving public employees to 401(k)s like those of us in the private sector have
why should the DMV be expected to also manage it's employees retirement accounts?— barry m goldwater
How is moving public employees from a pension to a 401K solve anything? It doesn't even address the problems that caused this problem. With the deregulation of Wall St., I no longer believe 401Ks are a safe method to save for retirement. But, people still will require funds to retire. 401Ks will lead to state's caping their contribution and workers will be required to contribute more and more. Of course, addressing the unsustainable growth in the price of health insurance due to out of control growth in the cost of health care would be a real step in addressing the issue. 401Ks suck. They have failed millions of americans. Just go to a fast food chain and you can see all of the former retirees working there. We've wiped out 20 years of returns on our 401Ks in 3 years and we will never recover from those losses. Anyone who suggest moving even more people into 401Ks will insure a disaster in the future.— MikeP
No mention of the wolf in the hen house making these investments.....little Nickey Maiale. Tells us taxpayers again, Joe, what his investment qualifications are again?- Wil Von, he used to ask me not to point out he'd been a South Philly Democratic ward leader. Also a Harrisburg lobbyist for various interests e.g. energy. While he was already SERS chairman. Ex state rep, too. Still I did point those things out, from time to time. He hasn't returned a call of mine in years; he has staff people who handle press. But I wouldn't blame the chairman so much; he's only there because the governors and General Assembly members and retiree reps on the board have wanted him there. For the past 20 years. Joe D.— Joe D
- So give them less money if we don,t have it , make current employees pay more into it or stop giving pensions, 401k it.— krautmef1
- Genreal assemblie's pension payments must be stopped. These guys have not done their job for God knows how long.— Tony_From_PA
