– Legislation introduced by Rep. Dawn Keefer (R-Dillsburg) to give members of the General Assembly information critical to ensuring sound fiscal management of Pennsylvania’s employee pension funds was approved by the House State Government Committee on Tuesday.
“Taxpayer dollars used to fund state employee pensions are tied up in various investments and the return on these investments fluctuates with the markets,” Keefer said. “Though predicting how investments will do is never a sure thing, this bill would help lawmakers better manage the two state pension systems.”
Under Keefer’s House Bill 1962
, the actuaries for Pennsylvania Public School Employees’ Retirement System (PSERS) and the State Employees’ Retirement System (SERS) would each be required to conduct annual stress tests. Each test would include various scenario analyses, simulation analyses and sensitivity analyses.
The legislation would also require each pension system to submit its stress test results to the Independent Fiscal Office (IFO) so officials can prepare a report summarizing the stress test. This report would be available to policymakers for use during the yearly budget process. By giving lawmakers more information, they’d be able to see the potential long-term implications of pension funding decisions and market forces.
A stress test is a simulation designed to determine the ability of a given financial investment program to withstand economic crisis. For pension plans, this would entail analyzing key assumptions about future investment returns under various economic conditions and scenarios. Conducting stress tests allows policymakers to identify unsustainable financial practices and risks before they become critical.
Keefer’s legislation not only codifies the practice of annual stress testing for SERS and PSERS, but it specifically delineates the required components of the testing and assures the General Assembly will have access to the information.
“The fiscal health of our state pension plans has been challenged since the 2008 recession. Another economic downturn could be devastating to the funds, and it is incumbent upon policymakers to assure responsible investment practices and sound fiscal management are being utilized by fund managers,” Keefer said.
A pension reform law was enacted last year and directs most new state employees to enter one of the offered 401(k)-style retirement plans. Existing employees were also able to leave the pension system for one of the plans. Keefer joined one of the 401(k)-style plans.
Keefer’s bill is part of a package of bills to address the state pensions systems. House Bills 1961 and 1963 were also approved by the House State Government Committees on Tuesday.
Representative Dawn Keefer
92nd Legislative District
Pennsylvania House of Representatives
Media Contact: Greg Gross