Actuarial Report Prompts PennSERS Board to Lower Employer Contributions

Board approves nearly $300 million in private equity, multi-strategy investments.

The board of the $30 billion Pennsylvania State Employees’ Retirement System (Penn SERS) is lowering its composite employer contribution rate for the 2018-2019 fiscal year based on the results of an actuarial report.

The report, a 2017 actuarial valuation conducted by Korn Ferry Hay Group, noted that the organization’s funded status increased from 55.5% to 60.7% based on the market value of assets. Funded status based on an actuarial value of assets increased from 58.1% to 59.4%.

The board approved reducing the calculated composite employer rate to 32.93%, slightly down from the 33.24% that employers are currently contributing.

According to a statement from the fund, the composite employer rate is a “a weighted average of 21 different rates for the system’s various classes of service and subgroups.” Each employer will be notified by the retirement system of the actual rates for its employees.

“Over the past eight years, policymakers and our employers have remained disciplined to restoring funding to employee pensions according to the levels established by Act 2010-120 and that work is yielding positive results,” PennSERS CFO and Acting Executive Director Anthony J. Faiola said in a statement. “We have turned a corner as the employer rate is no longer rising and the funding status is climbing.”

In addition, the board will commit up to $75 million to its private equity class and nearly $200 million to its multi-strategy class.

For private equity, $50 million will be moved to Hahn & Company III L.P. and up to $25 million to Hahn & Company III-S L.P., which will focus on mid-market private equity and equity-related investments in companies that are either based in or hold a solid footprint in South Korea.

As for multi-strategy investments, $100 million will go toward the ICG Europe Fund VII SCSp and $75 million to the ICG North American Private Debt Fund II L.P. Fund VII will focus on subordinated debt and intermediate capital investments in European mid-market companies. The North American will invest in mid-market companies.

These investments will be funded from cash.

The retirement system’s global public equity class will be overhauled, as the board approved the conversion of two of its emerging markets portfolios from separate accounts to comingled structures. The board will also relocate $400 million from the MCM Russell 1000 index fund to the BlackRock Emerging Markets Index Fund.

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