January 3, 2019
Pennsylvania’s two public pension systems received a wake-up call on Dec. 20, delivered by a review commission in a 400-page report.
What’s clear from the report is that, if the two pension funds don’t respond appropriately, the funds risk increasingly shaky times.
Fortunately, they still have the opportunity to avoid, or at least minimize, such unwanted scenarios, if they make the right moves now.
However, they won’t really be able to replace what the report indicates that they might have lost.
Those currently in charge of overseeing the funds’ operations and decisions should welcome recommendations contained in the report. Meanwhile, state taxpayers need to pay attention to developments on the pension front because of their financial stake.
State taxpayers contribute to both the State Employees’ Retirement System and the Public School Employees’ Retirement System. A consultant’s analysis accompanying the report indicates that the pension plans have had a consistent record of underperformance over the past 10 years and over a 30-year period.
Why has that alleged underperformance taken so long to receive the kind of close scrutiny to which it now is being subjected?
The report also faults efforts to control management costs.
The report is the product of a study by the Public Pension Management and Asset Investment Review Commission. According to a front-page article in the Dec. 24 Mirror, the recurring themes throughout the report are the need for change and transparency in virtually all of the systems’ operations. The report points out that beefed-up transparency would impose greater public pressure on the retirement systems to justify their investment decisions and, if they can’t, to opt for different ones.
“If these recommendations to the two public pension systems are enacted, we will save taxpayers billions of dollars, reduce unnecessary risks and costs without compromising performance and, most importantly, keep our promise to existing retirees and system members,” said state Rep. Mike Tobash, R-Schuylkill, commission chairman.
He and state Treasurer Joe Torsella, commission vice chairman, said most of the recommended changes can be accomplished without legislative action.
The two retirement systems shouldn’t have to be reminded months from now that they should be significantly along in addressing weaknesses that the report identifies.
The pension systems, which were not provided copies of the report in advance, were said to be reviewing the lengthy document.
The current volatility of the stock market makes it mandatory for leaders of the retirement plans to take aggressive steps to minimize losses to which the pension plans might be exposed.
On the investment front, stocks’ poor performance over the past several weeks have painted the likelihood of challenging times ahead.
Torsella’s observation was correct — that every dollar that stays in the funds instead of going to Wall Street helps bring the retirement plans closer to meeting their obligation to beneficiaries.
For retirees’ and taxpayers’ sake, well-thought-out strategies must replace the costly errors and shortsightedness of the past, and heightened transparency will aid in that objective.