Faced with budgeting responsibilities, Luzerne County Council members were briefed last week on the need for yet another employee pension fund contribution increase.
Actuary Greg Stump had cited two main drivers at an April county retirement board meeting: People are living longer, and the revenue projected from future investments had been unrealistically high.
In response, the retirement board overseeing the fund had voted to reduce the investment earning target from 7.25 percent to 7 percent, which will increase next year’s taxpayer contribution by $1.2 million — $750,000 from the general fund and the rest from outside funding sources.
The county is set to pay $13 million into the fund this year, with $9.3 million from the general fund, officials said.
Investment adviser Richard J. Hazzouri, of Morgan Stanley, told council members his team will continue pushing for maximum returns without exposing the fund to excessive risk that could lead to devastating losses.
He has projected more dismal short-term gains around 4 percent the next few years as increased volatility is expected to return to the market. An actuarial investment return target in the 6 percent range would be more realistic, Hazzouri told council, but each 0.25 percent reduction boosts the county contribution by $1.2 million.
“I think the spirit of the message is that returns going forward are going to be much lower than they’ve been historically,” Hazzouri told council.
Reducing pension fund administrative and investment expenses has been a priority, Hazzouri and county Retirement Coordinator Rick Hummer told council.
Payments to money managers and other investment costs were $742,456 in 2017, compared to $1.46 million in 2009, their tally shows.
Administrative expenses, which would include audits and actuarial services, totaled $114,357 last year and $552,014 in 2009, their report said.
Money managers must sign a “most favored nation” clause prohibiting them from charging other clients fees lower than the amount paid by the county, Hazzouri said. His team also recouped additional tax-related revenue from foreign investments and includes lower-fee index funds in the mix where appropriate, Hazzouri said.
A total $85.9 million in public funds have been pumped into the pension to keep it stable over the last decade, or since 2008, records show.
The annual county contribution ranged from $7.1 million to $9 million from 2009 to 2014 and increased to $10.2 million in 2015, $11.3 million in 2016 and $12.06 million in 2017, according to records.
Meanwhile, investment returns have generated about $110 million, net of fees and expenses, since Morgan Stanley took over as pension adviser in October 2008, Hazzouri said.
Valued at $239 million the end of May, the fund had plunged from $210 million in 2007 to $151.8 million before Morgan Stanley was retained.
The current investment mix: $115.8 million in stocks, $92.1 million in bonds, $26.4 million in hedge funds and other alternative investments and $4.7 million in cash, Hazzouri said.
Each month, the fund must cover $1.2 million to $1.3 million in payments to retirees. The pensions are guaranteed by state law.
Retiree payments are expected to increase significantly over the next decade, Hazzouri said.
Hummer said the number of employees paying into the plan is now only 200 less than the number of retirees.
“We’re almost at the the point where it’s equal,” Hummer said.
About 3,000 retirees and employees participate in the plan, but the exact breakdown was not immediately available.
Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.