WB Pension fund bounces back from downturn

WILKES-BARRE — A shift from bonds to stocks during the depths of the COVID-19-related economic downturn spared the city’s pension fund from a greater loss and positioned it for a recovery, the plans’ manager said Wednesday.

The fund, an aggregate of five plans, has since been weighted more toward stocks and doing better than it was a year ago, Alexander Goldsmith of PFM Asset Management LLC told the pension board members during a public meeting.

The report prepared by the Philadelphia-based PFM and presented by Goldsmith, a senior managing consultant, put the market value of the fund at $66,642,805 as of June 30, the end of the second quarter. It started the year at $72,823,279 and dropped to $62,306,819 as of April 1.

But during the second quarter it earned a return of $7,314,835 and distributed $2,978,850 in benefits. As the third quarter comes to a close the value has increased further to $68,482,485, a slight bump from the start of the third quarter on July 1, 2019 when the fund was valued at $68,314,712.

“The immediate benefits are in no stress whatsoever, but we know there have been issues and there may be again in the future,” Goldsmith noted.

The fund covers two plans each for police and fire and one for non-uniform employees. Earlier this year it was approximately 56 % funded. Should it fall below 50 %, the state would step in and the city would have to take steps to improve the funding ratio.

The fund benefited from putting more money into bonds than stocks when the market plummeted in March due to the shutdown measures government officials took in an attempt to slow the spread of the novel coronavirus, Goldsmith explained.

The “record-setting stimulus package” assembled by the federal government and the lowering of interest rates by the Federal Reserve contributed to the turnaround, Goldsmith added.

Board member Mark Lear, a Wilkes-Barre City Fire Department firefighter, advocated weighting the plan even more toward equities.

The interest rate for bonds is near zero, encouraging refinancing of debt at the low rate. “This is a great debt market,” Lear said.

Mayor George Brown, board chairman, said the savings to the city has increased as it refinances up to $24 million in bonds. Brown said it’s jumped to $816,000 from initial estimate of $770,000.

However, Goldsmith cautioned against investing more into stocks to tilt the target balance of 62 % in equities and 32 % in fixed income bonds.

The target is adjusted accordingly just as recently this year, Goldsmith said. Changing the investment policy statement requires a board vote, he said.

“We were very underweight to stocks in March of this year and that helped the plan. Right now we’ve tilted that back the other way so now we’re underweight to fixed bonds on a marginal basis,” Goldsmith said.

It’s proven to be an effective strategy, but the overall goal is to seek the best return while trying to manage the volatility of the market, Goldsmith said.

“Right now we don’t think we’re headed for another shutdown, but we also don’t know what’s going to happen this winter,” Goldsmith said.

The board approved a payment of $16,789 to Korn Ferry for actuarial services for the plans.