Pennsylvania’s Pension Fund Crisis

Pension funds have long suffered major setbacks over the years with many of them failing due to lack of funding. Unfortunately, that crisis is still looming in many states.

Pennsylvania’s Public School Employee’s Retirement System (PSERS) recently announced that school districts will have to pay 32.57 percent of every employee’s salary into the fund for the 2017-2018 fiscal year. This news is pretty common and yet certain groups are calling for the board to make fiscal decisions that could have negative financial repercussions further limiting the ability of the PSERS fund.

In a recent letter to the PSERS board, teachers and environmental groups rallied behind their belief that pension funds should not be invested in fossil fuel stocks. Saying the Board must “act responsibly” with pension investments, the letter fails to make a sound argument against the fiscal responsibility the board has to continue to grow the fund for its beneficiaries. In reality, the PSERS board should not be taking such high risks when the fund is already in jeopardy.

Since January, the Pennsylvania General Assembly has been working to reform the state’s pension system. Representatives understand the dire situation that the funds are in and are working on the problem – albeit unsuccessfully at this point. In fact, according to a study by George Mason University, if Pennsylvania doesn’t address the issues surrounding the state’s pension funds it will “go belly up in about 13 years.” So again, we ask, why would teacher and environmental groups be calling for PSERS to divest from fossil fuels, especially when the fund is in desperate need for safe and secure stock options.

It’s proven that a strong portfolio is diversified in order to provide a secure operating budget for the larger public. A 2015 study by the University of Chicago Law Professor Daniel Fischel found that portfolios divested in energy equities produced at a lower rate of 0.7 percentage points than those invested in fossil fuels. That represents a 23 percent loss over 50 years – money that is surely needed by Pennsylvania’s pension systems.

The reality is that these groups are failing to see the long term benefits that a diversified portfolio will bring to the many teachers that it serves. Instead they are choosing to politicize the issue by trying to objectify the fund to meet their social agendas rather than working for the betterment of the fund and the needs of its beneficiaries.

In an article on the status of the Detroit pension fund, Yolanda Hudson said it best – critical officials should “quit using pension funds as political pawns and instead get back to the business of prudent financial management.” Groups need to stop gambling with the futures of retirees and instead should be focused on fixing true pension problems in order to ensure that these livelihoods are upheld and successful.

 

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