PennPSERS keeps pace despite coronavirus blow

Although liquidity has been a top concern for the Pennsylvania Public School Employees' Retirement System since the coronavirus pandemic hit financial markets in March, it's not a new concern for the $60 billion state plan. And after strategically allocating 6% of its portfolio to cash, plus holding a diverse array of assets, the Harrisburg-based state plan's liquidity remains, well, solid.

PennPSERS projects to have $5.6 billion in total cash by the end of April, well above the $1.4 billion the plan had during the height of the global financial crisis.

"We have more than enough liquidity to continue paying benefits without interruption and meeting our other obligations without having to sell assets at inopportune times," PennPSERS Chief Investment Officer James H. Grossman said.

And like all other plans, market volatility is another concern the fund now faces amidst COVID-19. To deal with this, the pension system's asset allocation and allocation implementation committees meet each week to decide whether to rebalance certain parts of the portfolio and if so, how. They also meet to evaluate market opportunities.

The other major challenge the plan is facing in this pandemic is one that PennPSERS can't control: state revenue shortfalls.

Pennsylvania's independent fiscal office estimates that the state's shortfall will be $4 billion over the next couple of years. "We don't know if that shortfall could impact employers' actuarially required contribution rate in coming years," Mr. Grossman said in an emailed response to questions.

"If the annual required employer contribution is reduced or payment is delayed, it will put additional stress on the liquidity of the fund as any shortfall in employer contributions will have to be filled by reducing our cash position or selling other assets," he added.

PennPSERS currently has about a 2% negative cash flow position with annual employer contributions of about $4.5 billion.

To address all of these challenges, PennPSERS is ramping up communication, both internally and externally.

In addition to Executive Director Glen Grell instituting a daily conference call among all department managers since the agency mostly began working remotely in mid-March, PennPSERS keeps participants and school systems abreast of its operations through videos and written updates on its website.

"My investment team stays in constant remote contact with each other and our consultants, and I keep the board informed of staff-level decisions and insights on the markets," Mr. Grossman said.

The plan's investment office also monitors cash daily and makes projections based on known cash flows for the remainder of the month while also getting daily reports on the asset allocation.