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County funds

August 10, 2011

Pension loses cash but beats the market

County taxpayers won’t have to pump as much into accounts as first thought.

By Jennifer Learn-Andes jandes@timesleader.com
Luzerne County Reporter
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Luzerne County’s employee pension fund lost $4.16 million since June 30, reducing it to a value of $185.14 million as of Monday evening.

That 1.9 percent decrease hurt, but the year-to-date return is still a positive 0.75 percent, Richard J. Hazzouri, of Morgan Stanley Smith Barney LLC, told the county Retirement Board on Tuesday.

In comparison, the S&P 500 is down almost 10 percent this year to date, Hazzouri said.

“We’ve actually gained in a market that’s down 10 percent,” Hazzouri said. “It’s hard to take a victory lap because we’re up 0.75 percent, but to put it within the broader context of the market, we’re very pleased with the returns.”

Even though the fund has not grown by much, an accounting change may result in the county paying $2 million less to prop up the fund. Taxpayers have to pump millions into it annually to ensure it will provide legally mandated pension benefits to current and future county retirees.

This year’s taxpayer subsidy was projected at about $9 million, the same as 2010. However, the board learned Tuesday the 2011 subsidy will be closer to $7 million because revenue from employee contributions into the fund was not fully factored into the equation. The 2012 contribution has not yet been estimated.

The fund’s resilience stems largely from his company’s past recommendation to reduce exposure to market volatility by converting to a more conservative investment blend, Hazzouri said.

The board heeded that advice in 2009 and started shifting investments to a mix of 80 percent fixed income and 20 percent stocks. The combination was previously about 50-50.

Smith Barney’s contract as overall fund advisor expires in October, and board members said they will likely exercise an option to renew the company’s contract, rather than launching a public search.

The company had been hired in September 2008, replacing Merrill Lynch.

Commissioner Maryanne Petrilla said she and other board members are pleased with the company’s performance.

The board may vote on the contract renewal at a yet-to-be-scheduled meeting in September.

The three county commissioners, controller and treasurer serve on the retirement board.

The board’s structure will change under the new home rule government implemented in January, with the five seats filled by the county manager, budget/finance division head, county council chairperson or his/her designee, a county council member selected by council and a member of the retirement system selected by a vote of its members.

In other business Tuesday, the board voted to invest $2 million of the fund in “emerging markets.” The board also terminated money manager Chase Investment Council and hired a new manager -- Neuberger Berman, of New York City – to handle the $3.3 million in large quality growth stocks that had been under Chase.

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