2018 Pension Performance Report

Newtown Township BOS meeting, Wednesday, Mar 13, 2019

Grant Kalson of Dahab Associates was in attendance at the March 13, 2019, Newtown Township Board of Supervisors (BOS) meeting to review the performance of the Township’s 3 pension plans (police, non-uniformed employees, Firefighters). He noted that the fourth quarter of 2018 was not good (pension assets were down about 9%) but by March 11, 2019, the numbers were back up.

NOTE: For recent pension fund reports, visit my Pension Fund Databank.

Asset Mix Recommendation

Kalson reviewed the investment policy, which currently has a mix of 75% equities and 25% bonds. Experts feel that the current rapid growth will not be sustained long term and Newtown’s pensions have the highest percentage of equities among the 58 public pension funds that Mr. Kalson reviewed. Kalson said he was "scared to death right now." For these reasons he is recommending that the Board consider adjusting the equity balance to 68% as a hedge against market corrections. In response to Supervisor Mack’s questions, Mr. Kalson explained that the pensions are currently underfunded in the range of the mid to low 80% range.

Recommendation 

• Scale back the equity target to 68% of Plans’ assets
• Should actual allocation reach approx. 72%, then rebalance back to 68%
• Should actual allocation reach a low of approx. 64%, then also rebalance back to 68%

Rationale

• Stock market volatility has gone from very low to very high
• The stock market generally reacts negatively to uncertainty and there is plenty of that globally,   both economically and politically
• The Plans have enjoyed years of high returns largely due to their high equity exposure; but, most experts predict that those days are over and high volatility is here to stay
• A 75% equity target is at the high end among public pension plans

Implementation

• Eliminate the Longview Equity Index Fund
  • A holdover from many years ago
  • Already a very small % of Plans’ assets
• Take the rest from the Ceredex Mid Cap Value Equity Fund
  • The largest equity fund component
  • Exposure to this fund will remain relatively high
• Transfer the proceeds (approx. 6% - 7% of total assets) to the PIMCO Total Return Bond Fund