Pennsylvania's STRS....the real truth re: the bonus (PBI) termination on 12/12/08

John Curry to Tim Myers, December 18, 2008

Tim,

I think this news brief, right from the "horse's mouth," pretty well sums up the answer to whether or not this Pennsylvania teachers' retirement system did or did not quash the PBI program. The last paragraph says it all. The "second line" in the poconorecord.com article

[See Dec. 17 post below: Take a hint, STRS...do like Pennsylvania's STRS did....eliminate bonuses for investments people... even though they ALSO did better than their peers!] which I furnished is not "misleading"....in fact, it is the truth. Here is what the (Pennsylvania) Public School Employees' Retirement System has to say about this topic as taken right from their website.

John

http://www.psers.state.pa.us/hotnews/hotnews.htm

Statement to PSERS Members from PSERS Executive Director Concerning Payment of Incentive Compensation to PSERS Investment Staff

By now you have probably seen articles or heard comments about PSERS paying incentive compensation to its investment staff for performance that was earned during the past fiscal year ended June 30, 2008. For the past fiscal year, twenty-one PSERS’ investment professionals earned incentive payments of approximately $854,000.

These payments are not bonuses. The incentive plan, part of the overall compensation package of the investment staff for over 14 years, is outlined in a policy that is reviewed and approved by the Board on an annual basis. Rather than paying more in base salary, PSERS incentive plan makes the investment staff earn part of their pay through the incentive policy.

PSERS saved school employers and Commonwealth taxpayers millions of dollars by having its investment staff manage nearly 30 percent of the Fund’s assets in-house. While PSERS paid out an incentive for FY 2007/2008, PSERS investment staff added $1.3 billion in value by outperforming the median public pension plan return of -4.56 percent.

For the past three-and five years, PSERS added $9.3 billion and $14.8 billion, respectively, versus the returns posted by the median public pension plan. A large portion of the current year’s incentive is tied to longer-term performance which remains positive. For the three- and five-year periods ended June 30, 2008, PSERS was up 5.26% and 9.59%, respectively.

By producing returns above the median public pension plan, PSERS investment staff created significant savings for Pennsylvania school employers and Commonwealth taxpayers.

If PSERS were to eliminate its investment staff, PSERS’ school employers and Commonwealth taxpayers would pay significantly higher fees to external investment managers to similarly invest the funds.

PSERS understands there are concerns about paying these incentives during the current economic crisis. The incentives currently being paid, however, are based on a policy that was approved by the Board over a year ago, in August 2007, for the fiscal year ending June 30, 2008. PSERS is legally and contractually obligated to pay the incentives earned for the past fiscal year. PSERS cannot change the compensation package for its investment staff for their past investment performance.

While PSERS is obligated to pay the incentives for the past fiscal year, PSERS Board on December 12, 2008 terminated the incentive > compensation plan policy for the current fiscal year as of December 31, 2008.

From Tim Myers, December 17, 2008
Subject: RE: Take a hint, STRS...do like Pennsylvania's STRS did....eliminate bonuses for investments people... even though they also did better than their peers!

John,

In a letter from the Pennsylvania Executive Director, Jeffery Clay on Monday, Jeffery told me that the bonus have NOT been eliminated. They are going through a study of the bonuses just like we are. In fact, we are a month ahead of them on this. The second line of the article in question is misleading at best. The committee tasked with making the determination has NOT reached a conclusion yet.

Tim