The Washington County retirement board, which oversees pension investments for county employees’ defined-benefit plan, may reap fewer dollars for its public pension system in good times, but it hopes an investment strategy focusing on stability will help tide it over when economic news is not so good.
State law requires the funding of public employees’ pensions with taxpayer dollars, so the board’s decisions affect those who pay county and state taxes.
“Your investment management selection has been very good,” Lee Martin, a partner in the Peirce Park Group of Investment Management Consultants, told the board Thursday. “Let’s take the foot off the gas a little bit if you’re comfortable with that.”
Geoffrey Gerber, president and chief investment officer of TWIN Capital Management, McMurray, discussed with the board the concept of earning more money on the county’s pension investments in the long run by investing in firms that have less market volatility.
“Reduced-volatility equity strategies utilizing dividend growth in the stock selection process are shown to have historically provided a boost to risk-adjusted performance,” Gerber, who holds a Ph.D. from the University of Pennsylvania in economics and finance, wrote in a recent article.
The Washington County retirement board fits the description in his article, published in Investment Consulting, of an institutional investment committee meeting four times a year to review markets and long-term investment performance. “Allocation decisions and potential changes to an investment program are subject to much shorter-term scrutiny,” Gerber wrote.
By making riskier investments, the county could make more money as the market rose, but when the market inevitably would fall, it would also lose more money, according to Gerber’s analysis.
After distributing copies of his chart-laden 10-page article, Gerber asked the retirement board members – the commissioners, Controller Michael Namie and Treasurer Francis King – to focus on companies that offer a “more consistent earnings stream and consistent dividend growth.”
After discussing the matter, the board voted unanimously:
• To move from TWIN Capital’s Prime Strategy to its Dividend Select asset allocation plan to reduce its exposure to market volatility.
• To increase TWIN Capital’s money management fee to .028 percent from the previous .020 percent.
• To keep 1 percent of its portfolio in cash to meet current obligations so the fund managers are not constantly forced to sell equities to raise cash.
• To reduce its percent of domestic equities to 46 percent from 48 percent, and increase international equities to 18 percent from 16 percent.
• To reduce its assumed rate of return to 7 percent, down from 7.5 percent, beginning next year. Several other counties have done the same, and this matter has been under discussion locally for the past two years. The assumed rate of return, which is a prediction of what the county’s pension investments will earn over a long period of time, has been in place for at least 20 years.
The market value of the Washington County retirement plan portfolio was $134,413,884 as of April 30.
During the first quarter, the county employees’ pension investments increased by $2.9 million, besting its benchmark.
For a five-year return, the county also earned more than its target with a 16 percent return on its investments. Among public pension plans in the United States, Washington County is ranked in the top 8 percent, according to Martin.
“Our fund outperformed 92 percent of our peer group,” Namie said after the meeting.
The County Pension Law, Act 96 of 1971, governs the establishment and operation of a retirement system for employees in each of the state’s 67 counties and requires a defined benefit plan. In Washington County, workers contribute 7 percent of their earnings to their pension plans. The vast majority of Washington County retirees are making less than $40,000 in annual pensions.