Pennsylvania Pension Bill Could Save $18 Billon

Pennsylvania’s Independent Fiscal Office has released an actuarial note estimating that a current bill proposing the state increase its required pension payments would save more than $18 billion over the next 33 years.

According to the actuarial note, House Bill 778 is projected to save the state, on a cash-flow basis, $18.2 billion in employer contributions through fiscal year 2049-2050. That is equivalent to a savings of $5.1 billion at a present value of 3.6%.

For the first five years, the bill is projected to increase employer contributions by $2.5 billion on a cash-flow basis, or $2.2 billion at a 3.6% present value. For fiscal years ending between 2023 and 2035, employer contributions are projected to increase by $8.3 billion on a cash-flow basis, or $5.3 billion at a 3.6% present value.

After fiscal year 2034-35, the legislation’s savings accumulate with reductions in employer contributions over the last 15 years of the projection period expected to be $28.9 billion on a cash-flow basis, or $12.6 billion at a 3.6% present value. However, the bill does not say where the funds to make the required additional employer contributions would come from.

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The proposed legislation would accelerate the amortization of the unfunded accrued liabilities of the Public School Employees’ Retirement System (PSERS) and the State Employees’ Retirement System (SERS). The bill also eliminates the employer contribution collars, and requires that the differences between returns and actuarial assumptions be funded in level dollar annual contributions over a period of 20 years. The bill does not change the benefit provisions of current or future members.

The bill would require an estimated 14% increase in state pension funding for fiscal year 2018 compared to 2017, and each year after, pension contributions would increase by about 2.6%.

The reported unfunded accrued liabilities for PSERS totaled $42.7 billion, and the unfunded accrued liability would be $50 billion if the market value of assets from that valuation is substituted for the actuarial value. The reported unfunded accrued liabilities for SERS totaled $19.5 billion, and the unfunded accrued liability would be $20.3 billion if the market value of assets from that valuation is substituted for the actuarial value.

As of the end of 2016, the Pennsylvania Public School Employees Retirement System had assets of nearly $50 billion, and more than 260,000 total members, and the Pennsylvania State Employees Retirement System, which is 58.7% funded with an unfunded liability of $19.5 billion, had total fund assets of $26.3 billion, and more than 239,000 total members. As of September 30, 2016, the Pennsylvania Municipal Retirement System’s investment portfolio had a market value of just over $2.1 billion, and more than 15,500 members.

Tags: Pennsylvania Public School Employees Retirement System (PSERS), pension payments, SERS

Nine out of 10 hedge fund strategies tracked by Preqin posted positive return in April. with the Preqin All-Strategies Hedge Fund benchmark posting a gain of 0.76% in April, its sixth consecutive month of positive performance. All other leading hedge strategies made gains as well, and the 12-month performance for hedge funds now stands at 10.67%. Preqin also reported that Macro strategies funds suffered their second consecutive month of losses, and are up by 0.87% year-to-date. The top performing strategy so far in 2017 is Activist (up 4.9%) followed by Discretionary (up 4.6%).

On a geographic basis, the top-performing hedge funds (greater than $100 million) were in Emerging Markets, which are up 6.6% year-to-date, according to Preqin. This geographic sector has been propelled by three consecutive quarters of new investments, and a strong first-quarter performance of emerging markets hedge funds that helped push this sector in April to an all-time high of $205.8 million assets under management, according to Hedge Fund Research (HRF), Chicago. The top performer for the first quarter was Emerging Markets Asia, which includes India and China. For the period, India returned 5.63%, which contributed to the strongest performance so far this year of 22.1%.

HFR also reported that emerging markets hedge funds overall were up 7.8% based on their index, with China funds posting a gain of 10.3% year-to-date. HFR reported there are about 516 hedge funds investing in the Emerging Markets Asia region. HFR classifies emerging markets are those in Asia (ex-Japan), Africa, Latin America, the Middle East, Russia and Eastern Europe, and Multiple Emerging Markets.

According to Kenneth Heinz, HFR president, emerging markets hedge funds, including those investing in Latin America, the Middle East, Asia, and Russia, have “led industry performance through geopolitical uncertainty.” This uncertainty covered currencies, commodity prices, US dollar strength, politics, and terrorism. He also predicted that emerging market funds will continue to be the top performers throughout 2017.

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The strategy laggard on a year-to-date basis has been Macro strategies, with a 0.87% return, based on Preqin data.

Tags: Emerging Markets, Hedge Funds, India