On Pensions, Heads Should But Won’t Roll
As every Lackawanna County school district and hundreds more statewide prepare to raise taxes this year, state Treasurer Joe Torsella has revealed appalling incompetence at the state level that contributes mightily to that local burden. Because state lawmakers have refused for 17 years to fix the pension systems that they broke in 2001, every school district in the state is required to contribute to employees’ pension plans an amount equal to 34 percent of their payrolls, and continue to do so for the next three decades. It is unsustainable. According to Torsella, the pension boards governing the plans for state government employees and public school employees have “wasted” $5.5 billion over 10 years in fees paid to poorly performing Wall Street investment managers. The pension funds are underfunded relative to their liability by about $75 billion, due to the Legislature vastly increasing benefits and reducing state and school contributions in 2001. Pension managers compounded the problem by hiring highly aggressive, highly paid investment managers to put pension money in “alternative” but supposedly lucrative investments. Torsella reported recently that the plans could have saved billions in fees and achieved comparable or better investment returns by simply tracking equity and bond index funds. The Pennsylvania Public School Employees’ Retirement System could have avoided spending $3.9 billion while achieving better returns in seven of the past 10 years, Torsella said. Meanwhile, the smaller Pennsylvania State Employees’ Retirement System could have saved $1.6 billion in fees over 10 years while outperforming the high-fee plans in six of 10 years. Incredibly, despite evidence of poor performance and high costs, the board of the state employees’ pension recently authorized another 10 years of the same regime, continuing to commit up to 40 percent of the pension’s assets, about $11.6 billion, to alternative investments. Gov. Tom Wolf has criticized the high investment fees, yet three of his appointees to the board voted for the new investment plan. Meanwhile, the Legislature has formed a bipartisan committee to explore pension savings. Its goal: $3 billion over 10 years, or $2.5 billion less than the boards already have thrown away on high fees for low returns. Until the Legislature finally gets serious about repairing its own pension blunders by rolling back future benefits to 2001 levels and controlling investment fees, local taxpayers should expect to continue paying for lawmakers’ greed and legislative misfeasance.