State House Sound Bites

Capitol reporter Katie Meyer covers Pennsylvania politics and issues at the Pennsylvania state capitol.

State pension fund lowers assumed investment returns

Written by Katie Meyer, Capitol Bureau Chief | Apr 28, 2017 8:17 PM

The commonwealth is grappling with an unfunded pension liability worth somewhere between $60 and $75 billion. (Photo by Lindsay Lazarski/Keystone Crossroads)


(Harrisburg) -- The past week has been an active one for Pennsylvania's pension funds.

It started with Governor Tom Wolf and Treasurer Joe Torsella urging the funds' boards of directors to cut out outside investment managers to save money on fees in the face of a roughly $70 billion unfunded liability.

It ended with the State Employee's Retirement System announcing it is revising its estimated returns on those investments--a move that adds more money to that unfunded liability.

When pension funds calculate their debt, an important metric is the amount of money they expect to make off investments.

The rate of return for SERS had been calculated at 7.5 percent, despite the fact that earnings usually fall far below that. So now, the fund has revised downward to a 7.25 percent return. A spokeswoman explained the move as being prompted by "challenges as a result of economic uncertainties and volatility."

The lower rate adds about a billion dollars to SERS' total current debt.

The other large pension fund, PSERS, previously made the same change last year, adding roughly $2 billion to its own debt.

These billion-dollar debt hikes may sound like a lot, but Treasury Department spokesman Mike Connelley noted that it's a semantics change more than anything. 

"That doesn't change what they're actually going to get," he said. "Nobody can tell the future. They're just being, in our view, more realistic about it."

As for the Governor and Treasurer's pushing to lower fees? SERS, for one, has since approved gradually moving $2.1 billion to index funds, which are generally cheaper to manage.

Published in News, State House Sound Bites

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