Commonwealth of Pennsylvania House of Representatives
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COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES APPROPRIATIONS COMMITTEE HEARING STATE CAPITOL MAIN BUILDING ROOM 140 HARRISBURG, PENNSYLVANIA MONDAY, MARCH 21, 2011 1:00 P.M. PRESENTATION FROM PSERS/SERS BEFORE: HONORABLE WILLIAM F. ADOLPH, JR., MAJORITY CHAIRMAN HONORABLE JOHN C. BEAR HONORABLE MARTIN T. CAUSER HONORABLE GORDON DENLINGER HONORABLE BRIAN L. ELLIS HONORABLE MAUREE GINGRICH HONORABLE GLEN R. GRELL HONORABLE THOMAS H. KILLION HONORABLE DAVID R. MILLARD HONORABLE MARK T. MUSTIO HONORABLE BERNIE T. O'NEILL HONORABLE MICHAEL PEIFER HONORABLE SCOTT PERRY HONORABLE SCOTT A. PETRI HONORABLE TINA PICKETT HONORABLE JEFFREY P. PYLE HONORABLE THOMAS J. QUIGLEY HONORABLE DOUGLAS G. REICHLEY HONORABLE MARIO M. SCAVELLO HONORABLE CURTIS G. SONNEY ————————— JEAN DAVIS REPORTING 7786 Hanoverdale Drive • Harrisburg, PA 17112 Phone (717)503-6568 • Fax (717)566-7760 1 BEFORE (cont.'d): 2 HONORABLE JOSEPH F. MARKOSEK, MINORITY CHAIRMAN HONORABLE MATTHEW BRADFORD 3 HONORABLE H. SCOTT CONKLIN HONORABLE PAUL COSTA 4 HONORABLE DEBERAH KULA HONORABLE TIM MAHONEY 5 HONORABLE MICHAEL H. O'BRIEN HONORABLE CHERELLE L. PARKER 6 HONORABLE JOHN P. SABATINA HONORABLE STEVE SAMUELSON 7 HONORABLE GREGORY S. VITALI HONORABLE RONALD G. WATERS 8 ALSO IN ATTENDANCE: 9 EDWARD J. NOLAN, REPUBLICAN EXECUTIVE DIRECTOR 10 MIRIAM FOX, DEMOCRATIC EXECUTIVE DIRECTOR 11 12 13 JEAN M. DAVIS, REPORTER 14 NOTARY PUBLIC 15 16 17 18 19 20 21 22 23 24 25 2 1 I N D E X 2 TESTIFIERS 3 NAME PAGE 4 5 NICHOLAS MAIALE 4 6 MELVA VOGLER 5 7 ALAN VAN NOORD 7 8 THOMAS BRIER 7 9 BRIAN CARL 9 10 LEONARD KNEPP 10 11 CRAIG GRABY 52 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 P R O C E E D I N G S 2 * * * 3 MAJORITY CHAIRMAN ADOLPH: Good afternoon, 4 everyone. Welcome to the Appropriations budget hearing. 5 This afternoon we have the pension systems, both PSERS and 6 SERS, with us. I'm sure that we'll have a very 7 interesting hearing. I am looking forward to it. 8 My name is Bill Adolph. I'm the Republican 9 Chair. I'm from Delaware County. 10 My colleague and friend, Chairman Joe Markosek, 11 is representing the Democratic Committee today. They must 12 have been told a different time. We'll get started right 13 on time. I'm sure they'll be here any minute. 14 I would like to welcome you. Who is doing the 15 talking? 16 MR. MAIALE: We'll do the introductions. 17 MAJORITY CHAIRMAN ADOLPH: Okay. If you would, 18 since there are so many of you at the table and the sound 19 system in the room isn't the greatest unless you have the 20 microphone right to your mouth. If you would like to first 21 start, Nick. 22 MR. MAIALE: Okay. Thank you, Mr. Chairman and 23 Rep. Markosek -- and by the way, I had the pleasure of 24 serving with both of you. It's good to see you again here 25 today. 4 1 I have with me Len Knepp, our executive director; 2 Tom Brier, our acting chief investment officer. I also 3 have Sam Yun, our counsel, as well as some other staff. 4 Summarily, we had a good year last year and we've 5 submitted a budget that is over 2 percent less than last 6 year. And our investment returns were 11.9 percent last 7 year. Coupled with a 9.1 percent the year before that, 8 we've well passed the financial fallout that we all 9 experienced in 2008 and on the road to a good recovery. 10 Nevertheless, there are long-term contribution 11 problems that you in the General Assembly need to deal 12 with. And we're prepared to answer any questions you have 13 about our budget, our investment program, and what the 14 future may hold. 15 MAJORITY CHAIRMAN ADOLPH: Chairman. 16 MS. VOGLER: Yes. I would like to thank you for 17 giving us some time today. I am Melva Vogler. I am 18 elected by the certified members of PSERS. I'm a math 19 teacher at Wallenpaupack Area High School. And I'm chair 20 of PSERS. 21 I have with me today Brian Carl. He is going to 22 be replacing Jeff Clay, our executive director, in the 23 speaking today. Jeff is seated behind me. He is with us, 24 but he won't be able to speak. He's had a procedure 25 involving vocal cords, which, while temporary, prohibits 5 1 him from verbally answering your questions. 2 Brian, however, was very active in working on Act 3 120. And I think you will find that he can answer your 4 questions adequately. 5 I also have with me Alan Van Noord, who is our 6 investment executive. And he will be answering your 7 investment questions. 8 Behind me I have many members of our very good 9 staff. So I'm sure we can answer all your questions. My 10 opening remarks are in the book so I will terminate with 11 that. Thank you. 12 MAJORITY CHAIRMAN ADOLPH: Thank you very much. 13 I would be remiss if I did not acknowledge the 14 presence of Rep. Bob Godshall from Montgomery County, who 15 is a member of your Board, long-time member. I appreciate 16 his presence today. 17 Chairman Markosek. 18 MINORITY CHAIRMAN MARKOSEK: Good afternoon and 19 welcome. 20 I don't have a whole lot of opening remarks. 21 We're very anxious to hear your testimony. Its subject 22 matter has been very crucial here in the last year or two 23 relative to the Legislature and the state employees and 24 teachers and school employees in our Commonwealth. 25 We have members who are on their way. Some have, 6 1 of course, made it here since the opening remarks. We look 2 forward to hearing from all of you. 3 With that, Mr. Chairman, thank you. 4 MAJORITY CHAIRMAN ADOLPH: Thank you very much. 5 When the Pennsylvania TreasureR was here last 6 week, I mentioned to him, how does the Global Economy 7 affect the Pennsylvania Treasury? 8 And I'm going to ask the same of you folks, how 9 the Global Economy and the tragedy that took place a week 10 ago in Japan -- you know, we all understand the loss of 11 life and the terrible loss of property and everything. 12 How does that affect the Pennsylvania Pension 13 Systems? 14 MR. VAN NOORD: We do invest globally. And there 15 isn't a part of the continent of the world that is not 16 impacted by our investments. 17 Particularly Japan, our prayers go out to the 18 people in Japan. But we have approximately $1 billion 19 invested in Japanese equities. We do have exposure there. 20 They obviously have gone down. It is not the time to be 21 selling Japanese equities. 22 Typically what happens in a natural disaster like 23 we've experienced, there is a downdraft and then people 24 start looking at what the impact will be long term. 25 MR. BRIER: And from SERS, if I may, we would 7 1 also like to, you know, extend our sympathies to the people 2 affected by the tragedy in Japan. 3 We have about 2 percent of the portfolio. We, 4 too, are international investors. We have about 2 percent 5 of the portfolio exposed in Japan. 6 And the precedent that has been expressed to us 7 through our managers -- we've talked to them and we're 8 monitoring the situation very closely. The Kobe Earthquake 9 in '95 and '96 had a similar effect on Japan's economy. 10 And it took several -- almost two years for them to get 11 back to full capacity. 12 There's an expectation. There will be a snapback 13 here. Of course, the global supply chain has been 14 affected, especially in the computer business and the 15 automotive business. 16 So SERS, like PSERS, is a very long-term investor 17 and we're patient. But there is some drag on global GEP. 18 Japan is only 8 percent of the global market 19 share. So even though they have, you know, several years 20 of probably negative or underperforming GEP growth, it 21 isn't expected to have a major impact on the global 22 economy. 23 MAJORITY CHAIRMAN ADOLPH: Thank you both for 24 that answer. 25 Rep. Jeff Pyle. 8 1 REP. PYLE: Thank you, Mr. Chairman. 2 Ms. Vogler, thanks for bringing you and your team 3 here today. First time on Appropriations, so a couple of 4 real basic questions for you. 5 Recently in the Governor's budget speech, he had 6 asked school districts to consider putting a pay freeze in 7 place for teachers. And in an almost unprecedented action, 8 Jim Testerman, the president of the PSEA, actually said he 9 was going to recommend that to his member districts. 10 I'm curious. It seems like this might have a 11 little momentum to it here. I would like to know what 12 PSERS's take is on what that would do if payroll growth is 13 frozen. 14 MS. VOGLER: From a teacher viewpoint, I doubt 15 that it would have very much impact on PSERS. But I will 16 let Brian answer that for you. 17 MR. CARL: We have projected that was used for 18 the Governor's recommended budget.