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House of Representatives
Session of 2019 - 2020 Regular Session


Posted: October 8, 2019 09:38 AM
From: Representative Mike Tobash and Rep. Garth D. Everett, Rep. Dawn W. Keefer, Rep. Brett R. Miller, Rep. Louis C. Schmitt, Jr.
To: All House members
Subject: Retirement Systems Improvement and Consolidation Package

The Public Pension Management and Asset Investment Review Commission (PPMAIRC) was established by the General Assembly to study the operations of the Commonwealth’s statewide pension systems and issue a report of its findings and recommendations. In researching and formulating its recommendations, PPMAIRC benefitted from the invaluable expertise of a wide array of national and international leaders and experts in the fields of institutional investing, finance, actuarial science and public pension plan administration and numerous other resources.

Because the legislature is responsible for enacting and amending the systems’ enabling laws, it is both the purview and responsibility of the General Assembly to respond to the effectiveness of these systems, establish mechanisms for independent examination and ultimately consider legislation to implement meaningful reform. Given the expertise that was brought to bear in formulating the PPMAIRC report, the General Assembly has at its fingertips an important resource for fulfilling its oversight role. The package of bills described below encompass some of the key recommendations of PPMAIRC.

Please consider cosponsoring these proposals.

Document #1

Introduced as HB1960

Description: #1 Consolidated Investment Office and Investment Oversight Committee
Among the recommendations highlighted in the PPMAIRC report is a noteworthy initiative that will enhance the systems’ internal investment execution capacities and talent, leverage combined fund size and infuse investment processes with additional expertise. PPMAIRC recommended the creation of a single, central pension investment office for SERS and PSERS to be staffed by highly qualified investment professionals with a fiduciary duty to both systems’ members and the establishment of an independent oversight body composed of experts in the field. 
During 2018, PPMAIRC conducted a series of hearings and received testimony from representatives of states with consolidated investment offices like Florida, Wisconsin and South Dakota.  Other experts weighed in on this topic as well.  Dr. Charley Ellis, an investment consultant who founded international business strategy consulting firm Greenwich Associates, also offered testimony and said, with regard to SERS’ and PSERS’ separate investment operations, “I have difficulty understanding why you have two different plans from the point of view of investing…”
Pursuant to the expert testimony and recommendations of PPMAIRC, this package includes a bill that will create a consolidated central pension office and an independent oversight entity composed of qualified experts in the field.  The office and its trustees will be responsible for a wide range of duties relating to the management of investments of the SERS and PSERS defined benefit plans.  This important proposal will enhance the Commonwealth’s stewardship of SERS and PSERS and the funds they hold for the benefit of state and school employees, retirees and their beneficiaries.

Document #2

Introduced as HB1962

Description: #2 Stress testing
With a mandate to evaluate potential implementation of the recommendations of the Society of Actuaries Blue Ribbon Panel on stress testing, PPMAIRC heard testimony from expert actuaries, including Bob Stein, who chaired the Blue Ribbon Panel.  In consideration of this testimony, and recommendations of PPMAIRC, the package will also include legislation that will require the actuary for SERS and the actuary for PSERS to each perform an annual stress test that includes various scenario analyses, simulation analyses and sensitivity analyses. 
This legislation will also require each pension system to submit its stress test to the Independent Fiscal Office so that the IFO may prepare a report summarizing the stress test.  The report will then be available to policy makers for use during annual budgetary considerations.   Consideration of stress test results will aid in budget decision-making by allowing legislators and others to see the potential long-term implications of pension funding decisions and market forces. 

Document #3

Introduced as HB1963

Description: #3 Pay the ARC/Eliminate Collar Provisions
During the course of its hearings and deliberations, the Commission commended the Commonwealth for its current commitment to full funding of the statewide pension systems and its success in paying the annual required contribution (ARC) over the past three years.  The statutory employer contribution collars which artificially suppressed the SERS and PSERS contribution rates for a number of years are no longer in effect.  However, statutory language implementing the collars remains in both the SERS and PSERS codes. 
This bill will amend the State Employees’ Retirement Code and the Public School Employees’ Retirement Code to clearly establish that the contribution collars are no longer in effect and ensure that the Commonwealth pay the ARC each year.

Document #4

Introduced as HB1961

Description: #4 SERS and PSERS Common Investment Reporting Period
Among the many recommendations of PPMAIRC, is straightforward suggestion that SERS provide its investment performance data on a July to June basis, in addition to the calendar year basis on which its investment, actuarial and financial data are currently reported.  The Commission specifically recommended that the General Assembly investigate the feasibility of establishing a common investment reporting period for both SERS and PSERS. 
This package will include legislation to establish the recommended common reporting period. Because PSERS and many other pension systems issue investment performance reports on a July to June fiscal year basis, rather than a calendar year basis, this bill will require SERS to prepare an additional investment report for this time frame each year.  This bill will not alter existing financial, actuarial, benefit or budgeting timelines for SERS. 
This legislation will allow policymakers, pension plan members and beneficiaries, and the public to better compare investment performance between our two statewide pension systems, as well as among other systems across the nation.

Document #5

Description: #5 Pension Fund Fee Transparency
Under separate cosponsorship memo, Representative Brett Miller has indicated his intention 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. Representative Miller has modified his proposal to incorporate the transparency recommendations found in the final PPMAIRC report.