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When a mechanic for the Pennsylvania Department of Transportation goes to work, they don’t often think about the investment management fees of the Pennsylvania State Employees’ Retirement System (SERS). They shouldn’t have to.
It’s their job to keep the vehicles operating that build our roads and keep them safe to use. And when they’ve put years of hard work into the Commonwealth and reach retirement age, they need a pension system that can deliver on the promises made to them over their entire career.
That system is—in many ways—stronger than it used to be, thanks to the progress being made at SERS, and a new roadmap to building on that progress.
For the past 7 months, I have had the privilege of serving as Vice-Chair of the Public Pension Management and Asset Investment Review Commission, a commission which just released a landmark report and recommendations on how to improve PA’s pension system.
While we still have a long way to go to eliminate the $64 billion in unfunded liabilities among the Commonwealth’s two largest pension systems, SERS has led by example in stabilizing a system that so many Pennsylvanians rely on. One of the largest areas where improvements can be made is in reducing the amount of fees being spent on Wall Street money managers. In 2008, SERS reported paying $310 million in those fees.
But by 2017, SERS had reduced that amount more than 50 percent, down to $135 million.
To most of us, that still sounds like a lot of money, and can be reduced further. But make no mistake: cutting Wall Street fees by more than 50% keeps more money in Pennsylvania, allowing it to grow and eventually go to the retirement benefits of our workers.
But that’s not all SERS has done. Study after study has shown that so-called ‘active’ managers—those wizards of Wall Street that seek to buy and trade securities in order to outperform the market—are long-term failures in their craft. A shockingly small percentage of active managers are able to outperform the market, and almost none are able to do so reliably and by more than their high costs of operation.
In the market for publicly-traded stocks, SERS has largely abandoned these active managers in favor of commonsense, low-cost indexed investments. These investments can often have less risk, more reliability, and save more of your money to invest.
Those moves by SERS are both notable and commendable as we seek to build a stronger pension system for the 240,000 members who rely on this fund to make their retirement possible.
In our report, the Commission identified ways to build on and extend this progress. The steps to get there won’t be easy, and some of them will require partners in the General Assembly to pass legislation to make them possible.
But the work SERS has done on reducing fees and embracing indexed investments should give us all plenty of cause for optimism. In the years ahead, the markets will either go up, or down. None of us can control that. But we can control whether we’re invested in commonsense vehicles that give us the best chance to succeed, and we can control what we’re paying to do so.
By doing so, we can build on the progress SERS has made, and make the system even stronger for Pennsylvanians.