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Market won't hurt state pensions

| Monday, Nov. 24, 2008

Pennsylvania's multibillion-dollar state and school employee pension funds could report losses of 30 percent to 40 percent for the calendar year, outgoing Pennsylvania Treasurer Robin Weissman estimates.

But unlike private-sector workers faced with plummeting 401(k) values, members of the public pension plans have few worries. State law prohibits any reduction in benefit rates either to retirees or for workers enrolled in the plan.

The two state plans pay benefits to about 275,000 retirees. About 374,000 active state and school employees stand to collect benefits in the future.

The State Employees Retirement System and the Public School Employees Retirement System, long rated among the best managed public pension funds in the country, raise income through employee contributions, tax-funded employer contributions and investment returns.

Weissman, a former investment banker who sits on the boards of both pension systems, has yet to see third quarter or year-to-date figures for the funds.

"But I think they're commensurate with the market - about 30 to 40 percent down (year-to-date)," she said.

The losses follow recent record gains. The Public School Employees Retirement System reported a gain of 22.9 percent as recently as the fiscal year ending June 30, 2007.

Earlier this year, former state Budget Secretary Michael Masch warned that taxpayer contributions to the two pension funds - now totaling $1.1 billion - could spike by nearly $900 million in 2012 if either fund had a single year without gains or fell short of 8.5 percent returns in other years. He called for immediate action to avoid steep spikes.

Weissman, who previously called for changes in the fragmented pension system that covers the state's many municipalities, was hesitant to predict the long-term effects of the market downturn on the two state pension funds.

"It's hard to ascertain exactly what the consequences will be," Weissman said. "I think the duration of the crisis is what will create more issues for entities that have hedge funds or leverage in their portfolios.

"I think those issues could become more pronounced if the duration of crisis extends for a long time."

Spokesmen for the State Employees Retirement System and the Public School Employees Retirement System, conceded the funds have lost value since markets began to stumble this fall, but they could not provide specific numbers.

Evelyn Tatkovski, spokeswoman for the school pension fund, said it will release third-quarter returns this month.

A spokesman for the state employees pension system couldn't elaborate on Weissman's projections.

"But there is certainly no question we're all being impacted by the same markets," said Robert Gentzel, spokesman for the $33 billion state employees pension fund.

He said a national survey of the nation's largest pension funds showed those funds averaged 14.3 percent losses in the third quarter of the calendar year. But experts say the most pronounced declines occurred in October and November.

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