Cut SERS investment fees
In June, Pennsylvania took an important step regarding its $70 billion-plus in unfunded public pension liabilities — a new law giving new employees 401(k)-style options in addition to traditional plans. Now, Auditor General Eugene DePasquale wants the State Employees' Retirement System to take another important step — further reducing fees paid to outside investment managers.
Discussing a newly completed SERS audit, Mr. DePasquale commended the agency for reducing such fees from $345 million in 2007 to $167 million in 2016. But he urged doing more, suggesting SERS target reducing such fees to $50 million annually, largely by making greater use of passive, index-fund-style investment strategies.
“Every dime going to Wall Street managers is not going into the pension funds that desperately need it, and adds ... stress to Pennsylvania's budget situation,” he said. Further, SERS' 6.5-percent 2016 return on investments lagged both the expected 7.25-percent return and the 12.4-percent national median return, he noted. SERS also needs to reduce investment costs because “if there is a downturn in the stock market any time soon, we are in big, big trouble, which is why every single dime has to go into the pension funds,” he told PennLive.
With SERS' funding level at 58.7 percent and its projected unfunded liability at $19.5 billion this year, every dime does count. Further reducing SERS' investment fees is another step among many needed to ensure public pensions' solvency and sustainability.