Pennsylvania Pension Panel Looks to Cut Investment Managers’ Fees

Study group searches for ways to bridge shortfall in state workers’ and teachers’ plans. 

Looking to narrow the funding gap for two of its largest state pension funds, a Pennsylvania study commission is eyeing a reduction in the fees outside investment managers receive.

The two funds, the $29.4 billion State Employees’ Retirement System and the $58 billion Public School Employees’ Retirement System have between $66 billion and $89 billion in pension obligations. Overall, Pennsylvania’s retirement system is 53% funded.

Led by Republican state Rep. Mike Tobash and Democratic state Treasurer Joe Torsella, the Public Pension Management and Asset Investment Review Commission held its first hearing to explore how to narrow the funding shortfall.  The goal is to save each plan $1.5 billion in annual costs over 30 years.

Since 2008, Torsella estimates the state spent $5.5 billion on management fees for high-risk funds that flopped.

“If you can’t measure it, you can’t manage it,” he said, according to “And if you don’t know what it is, then you don’t know if the interests of the beneficiaries of the plan and the taxpayers are aligned with the interests of the managers.”

Tobash wants the two pension funds to look at their positions in high-cost investments and make changes in allocations to drive down costs.

Neither returned requests for comment.

The commission was established last year to review the investment decisions of the two pension systems.  Already, as a result of their findings, the state is shifting a hybrid 401(k)-style plan for new hires and also has a buffer to protect taxpayers from increases if investment targets are not met. Plus, the retirement age will also increase next year to 67 from 65.

The group has six months to finish its review of the retirement funds. As part of its evaluation, it will suggest improvements to stress testing and fee transparency for the school plans. The commission will also analyze assets, investment strategies, performance, fees, and costs against established benchmarks.

The Pennsylvania pension and asset management group will hold two more hearings later in the year. Those will focus on analyzing the two school pensions across various areas, which include asset allocation, fees, costs, performance, and processes.

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