UK Investment Guides Loader

Strained Luzerne County pension plan bolstered by strong 2019 investment returns

written by Bella Palmer
pension-plan

Although pension subsidies will continue to put a strain on Luzerne County’s budget, strong investment returns in 2019 should soften the blow, say officials

Although pension subsidies will continue to put a strain on Luzerne County’s budget, strong 2019 investment returns should soften the blow, officials said at a recent county retirement board meeting.

Annual taxpayer contributions to the employee pension fund are based on a 7% investment return target.

Last year’s return was more than double that, or 17.3%, generating $39.1 million for the fund and boosting its overall value to $258 million, said fund investment adviser Richard J. Hazzouri, of Morgan Stanley.

As a result, fund actuary Greg Stump has lowered his projections of the amounts that must be paid from 2020 through 2024.

For 2020, the subsidy is now estimated at $14.25 million, said Stump, of Boomershine Consulting Group LLC.

This may free up $250,000 because the county budgeted $14.5 million for this year’s subsidy based on a prior estimate from Stump. About 75%, or $10.85 million, comes from the general fund, while the remaining $3.65 million is paid by departments covered by state revenue or other outside funding, said county Budget/Finance Division Head Brian Swetz.

If the new projection holds up, $187,500 could be saved in the general fund this year, Swetz said.

Swetz cautioned the county cannot bank on the savings at this time because Stump does not issue a final report until June. The numbers for the next four years also are subject to change because the actuary updates projections annually based on actual returns and other factors, Swetz said.

Based on the higher 2019 investment return, Stump projects the annual taxpayer subsidy will range from $14.6 million to $15 million from 2021 through 2024. His previous estimates had the subsidy increasing from $15.6 million in 2021 to $17.2 million in 2024.

Taxpayer contributions are necessary to help close a more than $100 million gap between assets and future liabilities that emerged years ago, when investment earnings and employee contributions stopped keeping pace with obligations for future pensions that are guaranteed by law, officials have said. As with other plans, costs are rising with increased life expectancy.

In 2019 alone, the fund paid $21.89 million to approximately 1,300 retirees, records show. The average monthly pension is $900 to $950, officials said.

Stump reported the plan is now 71% funded with the infusion from last year’s returns, which means it’s currently equipped to pay 71% of future obligations.

Attempting to subdue expectations of a repeat of last year’s performance, Hazzouri said he forecasts “much more muted” returns in 2020, noting the year-to-date gain is 2%.

A year ago, board officials were bemoaning the fund’s negative 6.26% return for 2018, which ended with the “worst December return since the Great Depression,” Hazzouri said, describing it as a “dramatically different story.”

In a year like 2019, it’s easy to lose sight of the risk and volatility, he said.

Investment options also are somewhat limited because it is a government pension plan that must keep cash ready to pay retirees, officials have said.

About 25% of the funds are invested in bonds, with some short-term for liquidity, Hazzouri said. The remaining investment mix: 54% stocks, 20% alternative investments and 1% cash.

In other business at the recent meeting, John Evanchick Jr., a sheriff department employee, was selected as board chairman. Councilwoman Kendra Radle will be vice chair. Swetz, Council Chairman Tim McGinley and county Manager C. David Pedri also serve on the board.

Important:

This article is for information purposes only.

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

You can tell friends this post!