Pennsylvania Inches Closer to Forming a New $83 Billion State Investment Office

A package of legislation is gaining traction to reduce the funding shortfall of Pennsylvania’s state retirement systems by merging two of its plans. The proposal just passed the Pennsylvania House State Government Committee, and is now headed to the state’s full chamber.

The legislation would merge the investment offices of the State Employees’ Retirement System and the Public School Employees’ Retirement System (SERS), combining their respective $29.6 billion and $53.5 billion pools of capital into an $83 billion Commonwealth Pension Investment Office.

“The primary objective…is to establish a highly professional and expert investment office to serve in a fiduciary capacity the investment needs of SERS and PSERS,” the bill reads.

The bill’s sponsor, Rep. Mike Tobash, a Republican, said that the consolidation of the two systems significantly improves the rates of return to both retirement systems. The GOP controls both houses of the legislature, but not the governor’s chair. “Pennsylvania could certainly improve its performance within our two pension systems, and improved performance means less taxpayers dollars going in to fund the commitments we made to retirees,” he said.

For more stories like this, sign up for the CIO Alert newsletter. 

The leading investment executive for the combined office is yet to be decided. SERS Chief Investment Officer Bryan Lewis resigned from his post in August 2019, and a replacement is expected to be named by June 2020.

In addition to consolidating the two investment offices, legislators are weighing other means of improving their funded ratios. One measure under consideration would give any SERS employer the option to make a lump-sum payment against accrued liabilities. Critics of the bill voiced concerns that the money would have to come from the state’s institutions and employers, such as Penn State University, and would be too unpredictable for calculating budgets and expenses.

The state’s pension plan underwent a new reform earlier this year, creating two retirement options in order to cut taxpayer risk while helping to shore up funding for state pension plans. The plan puts newly hired state employees into a hybrid or a 401(k)-like account. The hybrid plan would keep half a retiree’s money in a traditional, taxpayer-backed defined benefit fund, and the other half into a private 401(k) plan tied to the stock market.

SERS reduced its long-term assumed rate of return earlier this year to 7.125% from 7.25%, in addition to trimming its allocations to hedge funds, citing a shift to what it called “realistic expectations” and shying away from relatively expensive hedge fund fee structures.

Tags: Investments, law, Legislation, merge, Pennsylvania, PSERS, Retirement System, SERS

Three US Senators have introduced legislation to secure pensions for retired miners by amending the Surface Mining Control and Reclamation Act of 1977 and the Coal Act to include 2018 and 2019 bankruptcies in the miners’ healthcare fix that passed in 2017.

The bill is intended to secure the pensions of 92,000 coal miners and to protect healthcare benefits for 13,000 miners.

The Bipartisan American Miners Act of 2019 transfers certain funds to provide pension and health benefits for retired coal miners who have been affected by coal company bankruptcies. It was introduced by three US senators: Democrat Joe Manchin of West Virginia and Republicans Mitch McConnell of Kentucky and Shelley Moore Capito of West Virginia. McConnell is the powerful Senate majority leader.

“Year after year, our coal miners risked their lives to bring America the energy needed to become the world leader we are today,” Senator Manchin said in a release. “Our coal miners made a commitment to our country, and now it is our turn to uphold the commitment we made to them in 1946 by securing their hard-earned pensions and healthcare.”

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The Department of the Treasury would transfer additional funds to the 1974 United Mine Workers of America (UMWA) Pension Plan to pay pension benefits, the bill would provide. This would occur if the annual limit on transfers under the Surface Mining Control and Reclamation Act of 1977 exceeds the amount required to be transferred for existing obligations of the Abandoned Mine Reclamation Fund. The bill would also increase the annual limit on transfers to $750 million from $490 million.

The bill also adds miners affected by 2018 coal company bankruptcies to the group whose retiree health benefits are used in determining the amount that the Treasury must transfer under current law to the Multiemployer Health Benefit Plan.

It allows in-service distributions under a pension plan or governmental section 457(b) plan at age 59 ½, down from age 62, and extends and increases the Black Lung Disability Trust Fund excise tax.

“This is a permanent remedy for the pension and health care dilemma miners across Appalachia have unfairly had to face,” Senator Capito said. “Our miners worked for these pensions.”

Proposed Legislation Aims to Help Boost US Retirement Savings

House Committee Passes Bill to Overhaul Retirement Plans

Tags: Bill, Bipartisan American Miners Act of 2019, coal miners, Joe Manchin, Legislation, Mitch McConnell, Pension, Shelley Moore Capito