Inflation saps Wilkes-Barre’s pension fund, loss of $10 million in Q2

WILKES-BARRE — Inflation squeezed the city’s Aggregated Pension Fund, resulting in a more than 10% investment loss at the mid-year point and continuing the decrease for a second consecutive quarter.

The overall value of the five plans in the fund for employees and retirees dropped to $82.6 million as of June 30 when net benefits of $2.4 million were also factored in, Alex Goldsmith, senior managing consultant with PFM Asset Management, told the fund’s board Wednesday during a quarterly update.

“Despite the downturn this year, the health of the plan remains good,” Goldsmith said.

The investment loss of $10.2 million for the second quarter translated to 10.8%. The fund began the year with a market value of $104.2 million, a high point from the $22 million infusion from the proceeds of a bond deal in 2021, and fell to $95.5 million in April 1.

“So, again, big, big sticker shock. I think when you have a larger asset base starting from certainly, 10% of $90 million is going to be bigger than 10% of $60 million. So, it can certainly look bad,” Goldsmith said. “There is no immediate danger. We’re not having to sell assets each week or so or each month to pay benefits.”

Higher prices across the board affected the markets, pushing the Federal Reserve to cut interest rates in an effort to slow the increase and the lower than expected consumer price index of 8.5% released Wednesday by the U.S. Labor Department could indicate the move was working.

Goldsmith likened it to taking a lesson right from an economics textbook.

“The idea is to lower the monetary supply, take some of the high growth out of the economy and hopefully end up with falling inflation figures,” Goldsmith said.

“It’s a delicate dance, too much monetary restriction can slow the economy too much,” Goldsmith added. He was reluctant to say the country is in a recession, even though the typical scenario of two consecutive quarters of a contraction of the gross domestic product has occurred.

“The Office of Budget and Economics has not come out and formally said that yet. (The third quarter) will be a big, big indicator,” Goldsmith said.

Given the state of the economy for the first six months of the year, PFM shifted the allocation of investments in the fund. Domestic stocks and fixed income accounted for the largest shares at 35.1% each, followed by international stocks at 15.3%. They were lower than their target allocations. Other stocks remained at 7.4 % and cash increased to 7.1%.

“We at PFM have moved quite a bit of money into cash to be defensive over the last several months,” Goldsmith said. The thinking is stock valuations are “very attractive right now” and represent a “good buying opportunity,” he said.

Still, the fund’s manager is looking for some type of “catalyst” before making any major changes, Goldsmith said.

“If we continue, I think, to beat expectations, like today, it’s possible there could be a recovery, even into positive territory by the end of this year. I think that at least could be in the cards for the U.S.,” Goldsmith said.

As he’s done in the past, Bob Kadluboski asked about the fairness of city council members collecting full-time pensions for doing what he said was part-time work. And the response from the board’s solicitor Carl Frank was the same.

Wilkes-Barre was following the 3rd Class City Code with regard to the pensions and Frank directed Kadluboski to contact state Rep. Eddie Day Pashinski, D-Wilkes-Barre, about changing the law.

“We have to follow the law,” Frank said. He also pointed out the city’s pension fund is audited by the state and there have not been any problems with the points raised by Kadluboski.