Several state House lawmakers are trying to pass a package of bills designed to make Pennsylvania’s two massive, underfunded state pension systems more transparent, and a little cheaper.
Nearly all the bills have already passed their first hurdle and gotten through a House Committee, and there are signs they might have some traction in the full chamber.
But representatives from at least one of the pension systems say they’re skeptical.
Together, the State Employees’ Retirement System and the Public School Employees’ Retirement System—or SERS and PSERS—manage more than $85 billion.
They’re also carrying a roughly $70 billion unfunded liability which—according to the state Treasury—means right now, the fund has about 60 cents for every dollar it owes retirees.
One way the pensions can make money is by investing in private equity, which can yield bigger returns than investments in index funds, for instance.
But some lawmakers, like Representative Garth Everett (R-Lycoming), are concerned that those higher-risk, more expensive investments aren’t worth it.
“We’re underperforming, we’re paying too much for the performance that we’re getting, and we don’t have any openness and transparency into what they’re doing,” he said.
Everett is one of several lawmakers pushing a package of six pension bills. They’re largely based on a report released last year by an bipartisan group that the legislature instructed to review SERS and PSERS’s investment practices.
One of the proposed measures would consolidate SERS and PSERS’s investment offices into a single entity that would manage investments for both funds, and would be more closely overseen by the state.
“To think that we might combine the purchasing power of these two major pension systems, I think, is really important,” said Representative Mike Tobash (R- Schuylkill), who is sponsoring that measure.
He added, he also wants “to make sure that we’re not duplicating jobs within the system.”
Another bill would require the funds to disclose more of the costs associated with their investments.
“Transparency is what the bill is all about,” said Representative Brett Miller (R-Lancaster), who is sponsoring it. “What are in those contracts, what are the fees, what are the terms, what are in the side letters? Those types of things are what we believe the public should know.”
Other measures in the package would institute term limits for SERS and PSERS board members, require more independent audits, mandate stress tests to measure investment risks, make sure the state keeps paying into the pension funds, and require the pension boards to make reports on a more streamlined schedule.
Steve Esack, a spokesman for PSERS, said system officials are particularly unconvinced that consolidating investment boards is a good idea. He asked why the bill’s sponsors want to create “a whole new state agency to do the same investment work PSERS and SERS have been doing for more than a century.”
He added that PSERS believes there are limits to useful transparency, thanks to examples from states that have adopted similar measures, like California.
The state, Esack said, “lost the ability to invest in certain private markets because those private market managers do not want the regulatory burden the legislation would create.”
He said it is possible the fund would lose money if it moves away from private equity, and noted it would have to make up that revenue elsewhere.
SERS spokeswoman Pamela Hile said staff at that fund are still reviewing how the proposed legislation would affect its operations.
Democrats in the House State Government Committee, which has passed nearly all the bills, appeared to agree with PSERS. Most have voted against the bills that system officials flagged as concerning.
“They’re the experts in the field,” said Representative Kevin Boyle (D-Philadelphia), who serves as the committee’s minority chair. “Ultimately, due to their expertise I think their analysis should be respected.”
Bill Patton, a spokesman for House Democrats, echoed PSERS’s concerns about the transparency bill, saying it could “expose proprietary details and thus discourage fund managers from doing business” with SERS and PSERS.
Meanwhile Treasurer Joe Torsella, a Democrat, has long urged SERS and PSERS to move away from private equity investments, and has criticized the funds for spending money on private investment managers.
A spokesman for House Republicans said Majority Leader Bryan Cutler is interested in moving the package of bills to the floor, but is still assessing the caucus’s position.
Spokeswomen for Senate Republicans and Democrats say they don’t have a stance on the bills yet.