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By Aaron Chapin
In a job interview, a good human resources manager will ask about your professional experience — all of it, not just the past six months to a year.
When considering contractors to fix your roof, you’re going to look at how well customers rate them — not just now but over time.
And if you’re going to trust your money to an investment manager, you’re going to want to know what their track record is, including how well their investments do over short- and long-term timeframes.
The same should be true when assessing how well Pennsylvania’s Public School Employees’ Retirement System (PSERS) is managed.
A lot of ink has been spilled about PSERS over the past couple years, and a lot of the analysis from some journalists and politicians has missed one very important point.
Over the long term, PSERS has taken a conservative approach to investing that has delivered for retired school employees — and Pennsylvania’s economy.
Based on preliminary data for the fiscal year ending June 30, 2022, PSERS has exceeded its investment return target of 7% on average over three-year, five-year, and 10-year periods. When looking at the three- and five-year periods, PSERS’ rate of return was better than 95% of its peer group in public-sector pension funds.
You wouldn’t know that to read some reports that focus solely on how PSERS is doing amid short-term volatility in the markets.
It is true that investment returns for the one-year period ending June 30 were less robust — with an economy plagued by global inflation and the specter of a recession on the horizon. But even then, PSERS’ investments were among the top 1% among its peer group — with preliminary returns coming in at 2.28% for the year, well above the median of -7.6% among its peer group.
I’ll take a modest positive return in a tough year over negative numbers any day of the week.
The question of PSERS’ management is an important one — not just for PSERS’ nearly 500,000 active and retired school employees but for Pennsylvania taxpayers and the state’s economy.
Retired teachers, cafeteria workers, bus drivers, and other support staff count on their pensions to survive in retirement. And let’s be clear: They aren’t getting huge benefits. The average PSERS retiree is receiving a modest pension of $25,992 annually, according to PSERS data.
In 2011, new pension reforms took effect in Pennsylvania, ensuring that the costs of school employee pensions going forward would be manageable for state and local taxpayers. For all new hires since then, the annual cost of the new benefits being earned each year by post-2011 employees is less than 3%. The lion’s share of pension benefits post-2011 comes from employee contributions and PSERS’ investment income.
The story doesn’t end here.
The thousands of school retirees who count on PSERS take their modest benefits and spend it on groceries, clothing, and other necessities. They use it to put gas in their cars. They use it to cover co-pays for doctor visits and prescriptions.
In other words, they put it right back into Pennsylvania’s economy.
In FY 2020-21, PSERS’ pension benefits to retirees totaled approximately $7.1 billion. Most of this went directly into state and local economies.
According to a study by the National Institute on Retirement Security (NIRS), this spending rippled through the economy as the retirees’ spending became another’s income, producing a positive economic impact of $14.6 billion for the state’s economy. This economic boost helped support more than 66,000 jobs in Pennsylvania.
There’s no question that we all have a vested interest in a system like PSERS that contributes billions to our state’s economy. As taxpayers and Pennsylvanians, we should want to see PSERS well managed. And, by all accounts, it is.
Throughout my career as an educator, I’ve had it drilled into me that pensions are long-term investments, and that one year up or down isn’t something to get worked up about. We need to look at the longer-term story.
PSERS has steadily grown its assets since the Great Recession by investing in a diverse portfolio. Of course, it will hit the same economic headwinds that the rest of us do. There’s no way to completely sidestep a global recession.
What we do know is that slow and steady wins the race. And, when we look back at PSERS’ track record, we should feel confident that things are headed in the right direction.
Aaron Chapin is a social studies and reading teacher at Stroudsburg Area Middle School and vice president of the Pennsylvania State Education Association, which represents approximately 177,000 future, active, and retired school employees and health care workers in Pennsylvania.