April 14, 2020
We hope you and your families are well. The coronavirus pandemic has not been easy for any of us. Family, work, and school schedules have been upended by social distancing directives that are necessary to combat this virus that has stretched healthcare systems and upended global financial markets at unprecedented speed.
We are writing to provide an update on how PSERS’ Investment and Financial Management offices are working to protect retirement benefits and the overall health of the System.
Since early March, PSERS staff have worked mostly from home to access PSERS’ secure systems and stay connected to each other and our external consultants. This allows us to safely monitor and manage investments, operational budgets, and benefit payments with the primary goal of following Board policies of maintaining sufficient cash and liquidity positions.
By the end of April, we project $5.7 billion in total cash. In contrast, PSERS held $1.4 billion in cash during the height of the 2008-09 Great Recession and managing cash flow became a real challenge. After that experience, we rebuilt our long-term investment portfolio to hold more cash and liquidity, and a diverse array of investments. Rest assured, PSERS has more than enough liquidity now to continue paying benefits without interruption and without having to sell assets at inopportune times.
The portfolio is built to meet the Fund’s actuarial return target of 7.25% over the long-term, by managing risk in good economic times and limiting losses in bad economic times. These strategies have worked as our distribution of investment returns has been less volatile than our public pension peers since the Great Recession. Our diversified investments performed well when public equity markets experienced a downturn in the 4th quarter of 2018, and they have provided downside protection during the current COVID-19 market volatility. The investment results from current market fluctuations will not impact the FY 2020-21 contribution rate approved by the PSERS Board in December 2019. Employers and the Commonwealth can continue to use this rate for budget purposes.
We also want to remind you that investment earnings are just one piece of PSERS’ pension funding sources. The other two components are member and employer contributions.
As you know, members always pay their required contributions in full. Employers have paid their full actuarially required contribution since 2016, helping improve the Fund’s bottom line after more than a decade of underfunding. Receipt of the full actuarially required employer contributions is making a positive difference to the ongoing health of the retirement system. Any delay or reduction in employer contributions would impact PSERS’ current liquidity levels and could eventually force PSERS to sell assets at inopportune times. At the same time, the recent positive improvement in PSERS’ financial health would be reversed by another period of underfunding.
In closing, PSERS will remain on the job to invest contributions and administer the Fund on your behalf. We must remain hopeful that the COVID-19 pandemic eventually will end, and society and financial markets will revert to normal. Until then, please remain calm, follow all Department of Health guidelines, and stay safe.
James H Grossman, Jr., PSERS Chief Investment Officer
Brian Carl, PSERS Chief Financial Officer