PSERS Board, I Think I Know A
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1 2 COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES 3 APPROPRIATIONS COMMITTEE 4 MAIN CAPITOL 5 ROOM 140 HARRISBURG, PENNSYLVANIA 6 7 BUDGET HEARING PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM 8 STATE EMPLOYEES’ RETIREMENT SYSTEM 9 WEDNESDAY, FEBRUARY 27, 2013 10 1 :4 9 P.M. 11 BEFORE 12 HONORABLE WILLIAM F ADOLPH, JR., Majority Chairman 13 HONORABLE RYAN AUMENT HONORABLE KAREN BOBACK 14 HONORABLE JIM CHRISTIANA HONORABLE GARY DAY 15 HONORABLE GORDON DENLINGER HONORABLE BRIAN ELLIS 16 HONORABLE GARTH EVERETT HONORABLE MAUREE GINGRICH 17 HONORABLE GLEN GRELL HONORABLE SE TH GRO VE 18 HONORABLE THOMAS KILLION HONORABLE DAVID MILLARD 19 HONORABLE DUANE MILNE HONORABLE MARK MUSTIO 20 HONORABLE DONNA OBERLANDER HONORABLE BERNIE O ’NEILL 21 HONORABLE MICHAEL PEIFER HONORABLE SCOTT PETRI 22 HONORABLE JEFF PYLE HONORABLE CURT SONNEY 23 HONORABLE JOSEPH MARKOSEK, Minority Chairman HONORABLE BRENDAN F. BOYLE 24 HONORABLE MATTHEW BRADFORD HONORABLE MICHELLE BROWNLEE 25 HONORABLE MIKE CARROLL 1 BEFORE: (cont’d) 2 HONORABLE H. SCOTT CONKLIN HONORABLE MADELEINE DEAN 3 HONORABLE DEBERAH KULA HONORABLE TIM MAHONEY 4 HONORABLE MICHAEL O ’BRIEN HONORABLE CHERELLE PARKER 5 HONORABLE JOHN SABATINA HONORABLE STEVEN SANTARSIERO 6 HONORABLE JAKE WHEATLEY 7 ALSO PRESENT: 8 DAVID DONLEY, MAJORITY EXECUTIVE DIRECTOR RITCHIE LAFAVER, MAJORITY DEPUTY EXECUTIVE DIRECTOR 9 DAN CLARK, MAJORITY CHIEF COUNSEL MIRIAM FOX, MINORITY EXECUTIVE DIRECTOR 10 BERYL KUHR, MINORITY LEGAL COUNSEL 11 HONORABLE KERRY BENNINGHOFF HONORABLE PAUL CLYMER 12 HONORABLE HAL ENGLISH HONORABLE ELI EVANKOVICH 13 HONORABLE MATT GABLER HONORABLE MARK GILLEN 14 HONORABLE R. LEE JAMES HONORABLE RON MARSICO 15 HONORABLE DARYL METCALFE HONORABLE KATHY RAPP 16 HONORABLE RICK SACCONE HONORABLE TODD STEPHENS 17 HONORABLE WILL TALLMAN HONORABLE MIKE TOBASH 18 HONORABLE MIKE TURZAI HONORABLE TIM BRIGGS 19 HONORABLE MARK COHEN HONORABLE MARGO DAVIDSON 20 HONORABLE PAMELA DELISSIO HONORABLE MARK LONGIETTI 21 HONORABLE STEVE MCCARTER HONORABLE PHYLLIS MUNDY 22 HONORABLE JIM ROEBUCK 23 BRENDA J. PARDUN, RPR 24 P. O. BOX 278 MAYTOWN, PA 17550 25 717-426-1596 PHONE/FAX 1 INDEX 2 NAME PAGE 3 JEFFREY CLAY 7 EXECUTIVE DIRECTOR 4 PSERS 5 DAVID DURBIN 12 EXECUTIVE DIRECTOR 6 SERS 7 ANTHONY CLARK 49 CHIEF INVESTMENT OFFICER 8 SERS 9 ALAN VANNOORD 5 0 CHAIRMAN OF THE BOARD 10 PSERS 11 NICHOLAS MAIALE 84 CHAIRMAN OF THE BOARD 12 SERS 13 14 15 16 17 18 19 20 21 22 23 24 25 1 P R O C E E D I N G S 2 CHAIRMAN ADOLPH: Good afternoon. I'd 3 like to call to order the House Appropriations 4 budget hearing. Today we have with us the Public 5 School Employees' Retirement System and the State 6 Employees' Retirement System. 7 Good afternoon. And I want to 8 apologize for moving your time back, but our 9 hearings have been running a little longer than we 10 had scheduled for. So I apologize. I know you 11 have a busy schedule. 12 Before we get started, I' d like to let 13 everyone know that Chairman Paul Clymer is with us, 14 the House Education chairman, Republican chair. 15 Also with us is the State Government chair, 16 Republican chair, Daryl Metcalfe. And I understand 17 that the Democratic State Government Committee 18 chair, Chairman Mark Cohen, should be also 19 attending. Oh, he is here. Thank you very much 20 and looking forward to their questions. 21 Before we get into heavy pension issues 22 we are here to talk about, I want to take a few 23 minutes to congratulate Alan VanNoord on his 24 recently announced retirement. I want to thank you 25 for your years of service to the commonwealth and 1 to all the state employees. You have done an 2 outstanding job. 3 When there’s always pension reform 4 talk, and then one of the top dogs in the state 5 desires to retire, that worries me a little bit, 6 but I know Chairman Markosek would like to say a 7 few words as well. 8 Alan, congratulations. We are with 9 you, and, you know, I hope you enjoy your 10 retirement. It’s well earned. 11 MR. VANNOORD: Thank you very much. 12 REP. MARKOSEK: Thank you, Chairman 13 Adolph. 14 First of all, welcome, ladies and 15 gentlemen. Glad that you’re here. 16 As you know, as a member, along with 17 Rep. Grell, of the PSERS board, I think I know a 18 little bit about what’s going on there, and, of 19 course, you know, I am an active member of the SERS 20 board, so I’ d like to think I know a little bit 21 about some of these things. 22 If it’s okay with the — let me just 23 first mention that we have Rep. Brendan Boyle has 24 joined us. He wasn’t announced this morning, but 25 he’s here as well. 1 I do have a question, if it’s 2 appropriate, to get this started. 3 CHAIRMAN ADOLPH: Well, I just have a 4 couple, few announcements. I just wanted to make 5 sure that you had your opportunity to congratulate 6 Alan on his announced retirement. 7 REP. MARKOSEK: Thank you. Excuse me. 8 Yes, and I had done that privately, 9 but, Alan, I ’m going to miss your reports every 10 month. You really hit the nail on the head. 11 Thanks. 12 CHAIRMAN ADOLPH: You know, we had a 13 retirement party for a long-time employee, Dr. Ed 14 Nolan. And we put on his cake at his retirement 15 party, "Goodbye tension, hello pension." And, you 16 know, it was — it was a good feeling. Dr. Nolan 17 spent almost fifty years in public service, so it 18 was outstanding. 19 Also here with us today is Rep. Lee 20 James, Rep. Duane Milne, and Chairman Benninghoff 21 of the Finance Committee. 22 I want to start off with one quick 23 question, because I ’ m sure everybody has this on 24 their mind, chairman, chairman, you know, whoever 25 you see fit to answer these questions. You know, 1 we certainly don’t want, you know, six different 2 answers. Hopefully we can get together and the 3 questions are directed either at PSERS or at SERS, 4 you know, whatever. 5 But I’ ve been told that at least 6 twenty-seven states have made pension system 7 changes of some kind in the recent years, including 8 PA, with Act 120 of 2010. Most of the states have 9 proposed pension system changes to active plan 10 members that have been challenged in court. 11 My question to you is, do you follow 12 these challenges? And what is the status of these 13 lawsuit s ? 14 MR. CLAY: We do, obviously, try to 15 track what’s happening out there. One of the 16 things you have to understand, what happens in 17 these other states is not necessarily controlling 18 what happens in PA, because the laws are all 19 different. And it really does depend on what 20 they’re trying to do in these states and how the 21 pension benefits are protected, whether it’s by 22 statute, whether by constitution, indirectly or 23 directly by constitution. And, again, there have 24 been cases where -- generally, where you see the 25 rollback of what I call current member benefits, 1 typically as a cost of living adjustments for 2 retirees, future COLAs for retirees. But, again, 3 what happens in those other states is not 4 necessarily controlling here, but we can get you a 5 survey of what's been happening out there, if you 6 need that. 7 CHAIRMAN ADOLPH: I would certainly 8 appreciate that. And if you could share that with 9 Chairman Markosek's office as well, I think it 10 would be good information to have. 11 Chairman Markosek. 12 REP. MARKOSEK: Thank you, Chairman 13 Adolph. 14 Maybe I'll just direct this to 15 Mr. Clay, since I' m more familiar with him, but, 16 nevertheless, the question I have, in the past 17 you've been in front of us, both groups, and have 18 given us an update on the finances and the internal 19 numbers, so to speak, with both pension plans. 20 This year, things are a little bit 21 different. The governor's come forward with a 22 proposal — and we haven't seen a lot of the hard 23 details of that yet, but one of the things that he 24 has verbally talked about is having somewhat of, 25 for lack of a better phrase, a dual system. 1 We currently -- your plans are what are 2 known as defined benefit plans, and the governor 3 has also talked about proposing that 4 commonwealth -- commonwealth employees and teachers 5 be involved, certainly the new folks coming in the 6 door, in a defined contribution plan, which would 7 then create a dual system for PA. 8 I know you keep your costs relatively 9 low comparatively, partly because of just the 10 overall numbers that you have. We kind of pool all 11 of the state pension moneys in the two funds, and 12 we have professional people who operate those 13 funds. And they have been very successful, and 14 they’re able to keep the costs down. 15 Can you give us a little bit of 16 background what you may think would be the costs 17 involved, the additional costs involved? Would it 18 be more expensive for us to have a dual system? 19 And are defined contribution plans more expensive 20 to administer than the current system that we 21 have? 22 MR.