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INVESTING/PORTFOLIO STRATEGIES

Pennsylvania governor, treasurer call on state pension plans to cut costs

Pennsylvania Gov. Tom Wolf and state Treasurer Joe Torsella want the state pension plans to reduce investment costs by moving more toward passive investing.

“Passive investment can yield similar or even better returns than Wall Street money managers and reducing these fees could save billions for the funds and taxpayers over the long term,” Mr. Wolf said at a press conference Monday. “I applaud Treasurer Torsella for his cooperation and leadership on reducing money manager fees and our hope is that the pension funds can proactively do the same.”

Earlier this month, Mr. Torsella announced plans to shift all of the state treasury's $2.4 billion public equity investment holdings to a passive investment strategy, saying that the move will reduce investment risk and eliminate high management fees paid to outside firms.

On April 13, Messrs. Wolf and Torsella announced that they had written to the boards of the $26 billion Pennsylvania State Employees’ Retirement System and the $51 billion Pennsylvania Public School Employees’ Retirement System to encourage them to reduce investment costs by moving away from higher-fee money managers, implement administrative efficiencies and increase savings opportunities. They argued that making these changes would save billions of dollars for tax payers over the coming years and improve the state’s pension systems.

“Every dollar that we save in Wall Street fees is a dollar we can keep in the pockets of Pennsylvanians,” said Mr. Torsella.

In the letters, Messrs. Wolf and Torsella asked the boards of both PSERS and PennPSERS to work toward three goals: reduce Wall Street fees to the national average of public pension plans; reduce administration costs through the consolidation of pension investment and support operations; and expand the deferred compensation program. .

“The responsible reduction of external manager fees has been, and continues to be, a priority of the board and staff,” said PennPSERS spokeswoman Evelyn Williams in an email, which noted that the pension fund’s investment expenses have been cut by 25% over the past three years.

Ms. Williams added that the board has received the letter and the executive staff will discuss the letter with board members at an upcoming board meeting.

PennPSERS also passively invests all its $3.6 billion in public U.S. equity investments using its own internal investment staff.

PSERS spokeswoman Pamela Hile said that since 2010 the pension plan has reduced management fees by $73 million, allocated nearly 40% of the portfolio into passive investments and will continue that shift “where and when appropriate.”

“We continue to work with the administration and PSERS to identify efficiencies to maximize value to our members and the taxpayers,” Ms. Hile added. “As a board member, the treasurer will have an opportunity to discuss these recommendations with the full board.”

J.J. Abbott, spokesman for the governor’s office, and Debra Tingley, spokeswoman for the treasurer’s office, could not be immediately reached for comment by press time.