Plow Back Provision Helps Pennsylvania SERS Boost Its Employer Contributions

Board OKs nearly $1 billion in real estate, multi-strat, private equity deals.

Thanks to a “plow back” provision that allows reinvestment of savings, the

Pennsylvania State Employees Retirement System (SERS) will kick up its employer contribution rate. The board also approved a few alternative assets deals during its April 24 board meeting.

The $29 billion institution approved contributing a 33.53% composite rate of its payroll for the 2019‑2020 fiscal year thanks to actuarial calculations and a plow back provision from a fairly recent law. The policy allows for an extra 0.71% of payroll that reinvests savings into the pension system, similar to a stock dividend. Otherwise, the composite rate would have been 32.82%, slightly lower than what other employers pay, 32.90%.

“Act 2017-5 included a savings ’plow back’ provision requiring that the annual savings achieved through SERS benefit changes flow back into the system rather than to other nonpension obligations,” SERS Executive Director Terrill J. Sanchez said. “The ‘plow-back’ contributions, currently calculated to range from 0.10% to 0.93% of payroll, are expected in 13 of the next 23 fiscal years and will work to accelerate the system’s return to fully funded status.”

The board also agreed to nearly $1 billion in deals for its real estate, multi-strategy, and private equity classes, in line with its 2018-2019 investment plans, which aim to help the classes meet their respective 12%, 10%, and 16% portfolio allocation targets. The classes made up 7.2%, 8.8%, and 16% of Pennsylvania SERS’ investment portfolio on December 31, 2018, according to its most recent quarterly investment report.

It also greenlit a rebalancing of its equities, shifting $1 billion from the Mellon Capital Management Russell 3000 Index portfolio to cash. Other moves included extending its private equity consulting contract with StepStone Group until April 5, 2021, and keeping its membership with corporate governance advocacy group the Council of Institutional Investors.

The plan is 56.5% funded.

Neither Pennsylvania SERS nor StepStone Group could be reached for comment.

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