EASTON, Pa. – Northampton County government retirees now have more than $500 million dollars backing up their pensions.
"We're sitting on a half-billion," County Executive Lamont McClure said after John Spagnola, a managing director at PFM Asset Management, presented his report to the Retirement Board. PFM invests the funds for the county and reports to the board quarterly.
Board members and former Philadelphia Eagle Spagnola, a Bethlehem native, chatted briefly about the National Football League draft before Spagnola got down to the numbers.
As of Wednesday, the fund totaled $523 million, up about $117 million since 2018. Pension obligations are 90.5% funded, meaning pension payments are safe.
About 47% of the fund is in domestic stocks; 24% in international equity; 4% in "other growth," in this case, funds that invest in real estate; 24% in fixed-income (bonds and other debt) with just under 1% in cash, as of March 31.
The total fund was up 3.3% in the first quarter, which exceeds the benchmark of 2.6%. The biggest gain was 6.9% in domestic stocks, while fixed-income investments fell 2.8%. That loss was still better than the negative 3.4% benchmark.
The fund has risen with the market, coming off lows a year ago after the COVID-19 pandemic struck the U.S., sending market indexes down.
Spagnola said Thursday that while there are always risks, many signs indicate that the U.S. economy will keep growing.
"There could be an explosion of growth," he said, citing government stimulus payments, $2 trillion in household savings and the Federal Reserve's decision to keep short-term interest rates near zero. The Fed buys at least $120 billion in bonds each months, which keeps rates low.
If the federal government commits to improving the nation's roads, bridges and other transportation infrastructure, Spagnola said economic activity could pick up even more. The state of the U.S. transportation system "is almost embarrassing" compared to some other countries, he said.
However, with the government and public authorities controlling most airports, bridges and roads, there is little opportunity to invest in those assets.
Spagnola recommended to the board that 3% of the money invested in fixed-income be moved to commodity funds as a hedge against inflation. Inflation leads to higher interest rates, which hurt the value of bonds, while commodities such as metals gain in price. He also said PFM favors investing in small- and medium-size companies over huge firms at this time.
"What can we do to get defensive?" McClure asked, referring to a strategy to take less risk after seeing big gains.
"Diversification is very important," Spagnola said. Holding different assets spreads out risk and helps boost return. Shifting money from fixed-income to commodities is part of the diversification strategy.
McClure thanked Spagnola and PFM for directing the fund to gains, but Spagnola said the county's commitment to contribute to the pension has made the difference.
"It's kind of a cultural thing" in the Lehigh Valley to keep finances straight, he said. The average county pension is only funded in the low 80% range, Spagnola said in response to a question from county Commissioner William McGee.
Retirement board members include McClure; former County Executive Gerald Seyfried, who represents retirees; and Thomas Guth, who represents employees.