Management fees for PA pension funds questioned by Auditor General

Eugene DePasquale discusses Harrisburg's pension fund success at a press conference in February.

Pennsylvania’s Capitol is in Harrisburg.

America’s financial capital is widely considered to be Wall Street in New York City.

The two are closely linked.

PA’s two biggest pension plans (Public School Employees’ Retirement System & State Employees’ Retirement System)  are strongly dependent on stock market returns for their fiscal health.

The bigger the investment returns for retirees, the less money taxpayers have to fork over to make good on pension promises.

“I am deeply concerned,” said Auditor General Eugene DePasquale (D) at a press conference earlier this week discussing the pension plans and announcing an audit of PSERS and SERS.

He’s promising to take a closer look at the books, especially how the nearly $80 billion assets held by the two plans is invested.

In 2015, PSERS spent $455 million on outside fund managers whose work produced a 3.07 percent return on investment.

In 2015, SERS spent $159 million that yielded just .04 percent, less than 1 percent and far below the projected 7.5 percent return expected for both.

By comparison, in 2015, the S and P 500 index was 1.38 percent.

“We are paying millions of dollars to outside fund managers that aren’t even coming close to equalizing the stock market,” DePasquale said. “Which begs the question, why are we paying these people and what are we getting for our money?”

Governor Wolf has also, previously, questioned the cost of outside fund managers. But charts on PSERS website shows that those investors exceeded their benchmarks for 2015, which was a especially bad year on the market. One chart shows that for every dollar spent on outside management, the yield was $2.09 above what it would have earned had it been passively invested.

Both PSERS and SERS have steadily reduced the amount of money spent on outside fund management in recent years. Both say it’s unfair to look at just one year and snapshots over longer periods of time show the managers more than pay for themselves with healthier returns than the index. But DePasquale still has questions and he, as he frequently does, leaned on a sports analogy to make his point.

“Imagine paying Kevin Durant’s free agent salary, or LeBron James’ free agent salary and getting me showing up at training camp,” DePasquale said. “The fans would rightfully be outraged. I think I’d be a nice guy. I’d be good in the interviews and stuff but I stink. I can’t play in the NBA.”

Results of DePasquale’s audit are expected early next year.


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