HARRISBURG, PA – The PA Public School Employees’ Retirement System (PSERS) today provided an update from the recent May Board meeting on the implementation of Act 5 of 2017 pension legislation, and investment performance for the period ended March 31, 2018.
At last week’s meeting, PSERS Board of Trustees accepted the recommendation of the Evaluation Committee of a request for proposal for a vendor to provide recordkeeping services for the new Defined Contribution (DC) plan created under Act 5 of 2017. Voya Institutional Plan Services (VIPS) was selected as the Third Party Administrator for the DC plan.
Additionally, after extensive research and analysis by PSERS Investment staff and pension consultant Charles W. Cammack Associates, PSERS Board selected T. Rowe Price Retirement Blend Target Date Funds as the default investment option for the DC plan. Both selections are pending successful contract negotiations and are expected to be in place by late summer 2018.
PSERS Executive Director Glen R. Grell commented on the two vendor hirings. “We look forward to working closely with Voya Institutional Plan Services and T. Rowe Price to implement a best-in-class Defined Contribution Plan in July 2019,” said Grell. “PSERS staff are dedicated to maintaining the high quality and excellence standards of PSERS current Defined Benefit plan while implementing new DC features. PSERS has made tremendous progress with the selection of two excellent vendors to assist PSERS. While there is much work remaining to implement the new benefit plan, I am confident that PSERS staff, together with these two vendors, will successfully meet this challenge.”
Executive Director Grell also reported that PSERS recently completed a draft Plan Document for the new DC plan and will submit the document for approval to the Internal Revenue Service (IRS) on behalf of the PSERS Board of Trustees. It is anticipated that PSERS will have the Plan Document, as approved by the IRS, ready for final review and ratification by early 2019.
In other business, PSERS Executive Director Grell announced that Marla Cattermole, PSERS Director of the Bureau of Benefits Administration, will serve as interim PSERS Deputy Executive Director while the System completes the recruitment and hiring of a new Deputy Executive Director. Ms. Terrill J. Sanchez, PSERS former Deputy Executor Director, left PSERS on May 11th to become the Executive Director of the Pennsylvania State Employees’ Retirement System (SERS).
Also during the recent meeting, PSERS Chief Investment Officer James H. Grossman, Jr. reported the System earned 8.78 percent for the one year period ended March 31, 2018.
“The investment markets have become much more volatile during this past quarter but PSERS remains on track to produce another positive year above the earnings assumption of 7.25 percent,” said Grossman.
Mr. Grossman also covered the System’s performance since the end of the Great Recession. PSERS outperformed a simple, cost-free global 60% stock/40% bond (60/40) index portfolio by an annualized 1.10 percent, net of all fees and expenses, since July 1, 2009.
Mr. Grossman commented, “A lot of attention has been focused on low-cost global 60/40 portfolios performing well since the end of the Great Recession, specifically focusing on the low-cost aspect and less on the risks of such a portfolio. PSERS more diversified portfolio, however, has performed significantly better, cumulatively adding over $4.2 billion of additional return versus the global 60/40 portfolio. This is even after all fees and expenses have been paid. More importantly, though, is how much investment risk was taken. PSERS outperformance was achieved with 30 percent less overall risk than the global 60/40 portfolio during this period.”
“Prior to this period, PSERS asset allocation looked very different, as it had much more invested in equities,” Grossman continued. “PSERS significantly underperformed the global 60/40 portfolio during the Great Recession because during that time PSERS was less diversified and had a much larger concentration of investment risk in global equities. In short, diversification has worked very well for PSERS, its members, and school employers during the current equity bull market since July 1, 2009. We also anticipate the current asset allocation will provide some downside protection in the next equity bear market, especially versus the low-cost global 60/40 portfolio.”
In addition, PSERS reported positive investment returns of 0.11 percent for the quarter, 7.01 percent for the fiscal year-to-date, 6.93 percent for the five-year, 4.76 percent for the 10-year, 7.88 percent for the 25-year, and 8.52 percent for the 30-year periods ended March 31, 2018.
PSERS 10-year return continues to be negatively impacted by the Great Recession of 2008/2009. Since the Great Recession, however, PSERS earned a net of fees return of 9.30 percent with less investment risk and, as a result, PSERS 10-year return is already beginning to improve and is projected to rebound further during 2018.
More detailed investment performance data as of March 31, 2018 is available on the investment page on PSERS’ website at: psers.pa.gov
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About the Pennsylvania Public School Employees’ Retirement System
PSERS is the 15th largest state-sponsored defined benefit public pension fund in the nation. As of March 31, 2018, PSERS had net assets of approximately $56 billion and a membership of nearly 256,000 active school employees and over 230,000 retirees.
About Voya Financial ®
Voya Financial, Inc. (NYSE: VOYA), of which Voya Institutional Plan Services (VIPS) is an affiliate, helps Americans plan, invest and protect their savings — to get ready to retire better. Serving the financial needs of approximately 14.7 million individual and institutional customers in the United States, Voya is a Fortune 500 company that had $8.6 billion in revenue in 2017. The company had $541 billion in total assets under management and administration as of March 31, 2018. With a clear mission to make a secure financial future possible — one person, one family, one institution at a time — Voya’s vision is to be America’s Retirement Company®. Certified as a “Great Place to Work” by the Great Place to Work® Institute, Voya is equally committed to conducting business in a way that is socially, environmentally, economically and ethically responsible. Voya has been recognized as one of the 2018 World’s Most Ethical Companies® by the Ethisphere Institute, one of the 2018 World’s Most Admired Companies by Fortune magazine and one of the Top Green Companies in the U.S. by Newsweek magazine. For more information, visit voya.com. Follow Voya Financial on Facebook, LinkedIn and Twitter @Voya.
About T. Rowe Price
Founded in 1937, Baltimore-based T. Rowe Price (troweprice.com) is a global investment management organization that provides a broad array of mutual funds, subadvisory services, and separate account management for individual and institutional investors, retirement plans, and financial intermediaries. The organization also offers a variety of sophisticated investment planning and guidance tools. T. Rowe Price's disciplined, risk-aware investment approach focuses on diversification, style consistency, and fundamental research.