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Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20190&cosponId=28902
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House of Representatives
Session of 2019 - 2020 Regular Session

MEMORANDUM

Posted: March 20, 2019 09:27 AM
From: Representative Brett R. Miller
To: All House members
Subject: Pension Fund Fee Transparency Legislation
 
In the near future, I intend to re-introduce legislation (former HB 1460 from last session) that will require more robust and transparent management fee reporting standards from SERS and PSERS. This bill passed the House unanimously last session but session expired before the bill passed out of the Senate.

This legislation has been modified to incorporate the transparency recommendations found in the Public Pension Management and Asset Investment Review Commission’s (PPMAIRC) recently released report. With the goal of increasing transparency to plan members and taxpayers, this legislation is designed to give a complete picture of fees, costs and expenses associated with investments. It will also expand access to board proceedings, investment materials utilized, as well as increasing performance reporting.

Most public retirement systems pay performance-based fees and expenses to external investment managers as part of their compensation, but these fees, particularly those associated with alternative investments such as private equity, real estate, and hedge funds, often go unreported or under-reported. These hidden fees can amount to hundreds of millions, even billions of dollars which ultimately take away from pension fund balances needed to pay pension obligations.

Although SERS and PSERS do provide some information concerning the fees associated with portfolio management, my legislation will increase transparency to the plan participants and taxpayers by requiring SERS and PSERS to annually report a broader range of costs incurred from management and performance fees, particularly fees associated with carried interest.

The increased reporting requirements are motivated by the Institutional Limited Partners Association's (ILPA) Fee Transparency Initiative which is a national effort to establish comprehensive standards for total fee and expense reporting by private equity managers and their investors. These reporting standards have already been formally adopted by 20 states and the District of Columbia. This legislation would require reporting based on the ILPA standards.

Because fees and expenses can have a dramatic impact on the health of a pension portfolio, and because asset allocation and fees show the health of a pension plan, public reporting based on the ILPA standards will help ensure the solvency of the plan by exposing potentially high and unnecessary management fees. Since plan participants rely on these funds, and since taxpayers must pay for them, both have a right to know the full extent of plan expenses. Adopting these standards will ensure maximum transparency and openness to the public and will play a significant role in achieving the projected actuarial savings of billions of dollars in public pension costs that the PPMAIRC anticipates.

Co-sponsors from last session include: B. MILLER, GREINER, WARD, MILLARD, MILNE, RADER, LAWRENCE, WHEELAND, BLOOM, GROVE, ZIMMERMAN, MOUL, BARRAR, KEEFER, MAHER, CALTAGIRONE, HANNA, IRVIN, GILLEN, RYAN AND KORTZ.

Please join me in co-sponsoring this legislation to increase transparency in our public pension systems.



Introduced as HB1964