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Public School Employees' Retirement System
HARRISBURG – The Board of Trustees of the Pennsylvania Public School Employees' Retirement System (PSERS) held public meetings this week in which it approved a vice chair, acclamation elections of two trustees, and an investment manager proposal. The Board also heard reports about the investment and healthcare programs.
The Board voted Friday to name Trustee Richard Vague as its vice chair. Mr. Vague is as Philadelphia businessman, philanthropist and author who previously served as Pennsylvania's Banking & Securities Secretary. He is Gov. Josh Shapiro's appointee to the Board.
The Board accepted the acclamation election for Mr. Eric O. DiTullio, the only candidate who submitted a nomination petition for the Board's school board member regular election. Mr. DiTullio is on the Seneca Valley School Board and serves on the Midwestern Intermediate Unit IV Board. This will be his third term on PSERS Board. The new three-year term will run from Jan. 1, 2024, to Dec 31, 2026.
The Board also accepted the acclamation election of Dr. Pamela R. Brown, the only candidate who submitted a nomination petition for an active certified regular election. Dr. Brown is an Instructional Support Teacher in the Oxford Area School District and previously worked in corporate accounting and executive management. Her three-year term will run from Jan. 1, 2024, to Dec. 31, 2026.
The Board voted on Friday to hire NISA Investment Advisors, LLC, as an external derivatives manager for up to $10 billion in liquid markets exposure. The agreement is subject to pending contract terms.
During Thursday's public meeting of the Board's Investment Committee, Chief Investment Officer Ben Cotton provided an update on the system's total assets compared to investment expenses. The System's net assets rose 23 percent to $72.8 billion between FY2020 and FY2023. At the same time, external investment expenses fell 30 basis points (bps), from 87 bps to 56 bps, representing future estimated annualized savings of $215 million using present plan asset values. This fee reduction coincides with the Board's decision, and the investment office's actions to reduce its absolute return and private market strategies, which tend to have relatively higher base fees compared to other public markets allocations.
"We understand investment strategies, which can consistently deliver excess performance over time, warrant relatively higher fees," Mr. Cotton said. "However, we challenge all our partners to be more efficient with the investment dollars entrusted to them." Mr. Cotton added that the moderated allocation targets to higher fee asset categories encourages the investment staff to be more selective in investment choices. "As we reach our present allocation targets, we could see our investment related expenses reach 39 bps," he said. "This would be comparable to peers even as we continue to invest with our highest conviction investment partners."
PSERS also released its preliminary net-of-fees investment performance for the 2022-23 fiscal year, which ended June 30, 2023. Preliminary performance for the fiscal year is 3.54%, while preliminary annualized performance over the 10 years through FY 2023 was 7.46%. The Board's long-term assumed rate of return is 7.00%. Final performance will be released later this year.
During Thursday's Health Care Committee, Peter Camacci, Director of PSERS Health Insurance Office, announced PSERS Health Options Program (HOP prescription drug plan) received a near perfect consumer-services rating from the federal government for the upcoming 2024 plan year. The Centers for Medicare and Medicaid Serves (CMS) bestowed a 4.5 Star Rating on HOP's Prescription Drug Employer Group Waiver Plan for the second straight year. By comparison, the average CMS plan rating was 3.11 in CMS' annual review of 48 prescription drug plan (PDP) reviews. PSERS HOP program was one of only six plans evaluated to rate at 4.5 Stars or higher.
About the Pennsylvania Public School Employees' Retirement System
PSERS, founded in 1917, began operations in 1919 to oversee a statewide defined benefit pension plan for public school employees. PSERS' role expanded upon the passage of Act 5 of 2017 to include oversight of two new benefit options consisting of defined benefit and defined contribution (DC) components and a stand-alone DC plan. As of June 30, 2023, PSERS had total net assets of $72.8 billion and a membership of about 248,000 active, 247,000 retired school employees and 27,000 vested inactive members.