The Pennsylvania State Employees’ Retirement System (SERS) board, in a meeting last week, adopted some of the changes urged by the state pension reform commission last year when it pushed proposals for cutting costs and clarifying what happens to billions of dollars in public investments and fees.

SERS also voted to temporarily invest less in hedge funds (which it calls “multi-strategy” investments) and park more in bonds while it’s working on a new investment plan. Its target had been around 10 percent hedge funds, 11 percent bonds.

Gov. Tom Wolf and other statewide elected Democrats, and some Republicans in the General Assembly, have criticized the system’s reliance on high-fee private investments and urged it to invest more in low-fee indexed funds.

In a move to make the plan’s projections more realistic, the board voted to cut its target long-term “Assumed Rate of Investment Return” to 7.125 percent from 7.25 percent, effective at year’s end.

Advocates of lower targets, including state Treasurer Joe Torsella, a Democrat who served on last year’s Public Pension Management and Asset Investment Review Commission, have said the plan would have a tough time reaching the higher figure and should continue to bring it lower.

But trimming the target increases the plan’s projected long-term unfunded deficit, which at last year’s end (using the old target) totaled $20 billion, or 43 percent of the $47 billion SERS expects to need to pay future retirement benefits for current employees.

To keep the pension system from becoming more insolvent, state taxpayers are paying SERS a record 33.5 percent surcharge on every dollar state employees collect, as an “employer contribution.” SERS expects the payments will remain at least that high through 2025, before gradually declining, if markets perform as expected.

Executive director Terrill J. Sanchez called the lower return target “appropriate” considering “the present market environment.”

The fund’s value dropped 4.6 percent last year, its worst performance since 2008, as the stock market fell sharply at year’s end.

But SERS investment values rose a robust 8.2 percent during the first quarter of 2019, led by U.S. and foreign stocks, which rose a combined 12.9 percent, with hedge funds, real estate and bonds trailing, and private equity up just 0.6 percent.

Poor recent returns aside, SERS has continued to invest in private equity, voting an additional $75 million to Blackstone Capital Equity Partners VIII LP to make “control-oriented private equity investments on a global basis,” SERS said in its statement.

SERS board members also voted to “require, rather than request, that general partners of new private market investment opportunities provide SERS” with money-manager fees, manager expenses, and manager profit-sharing (“carried interest”) using the Institutional Limited Partners Association’s “reporting template.”

Until now, SERS, like PSERS, the system for public-school employees, has not listed profits kept by individual managers and funds, though it recently began reporting totals kept by all its managers.

By contrast, the Philadelphia city pension system and SEPTA’s pension plan, among other U.S. public investors, provide profit-sharing data, which show that some funds collect more money by keeping a share of their public clients’ investment profits than their more widely reported money-management fees.