Pennsylvania Auditor General Eugene DePasquale will conduct performance audits of the state's two largest pension systems, saying he wants to ensure that both systems "are operating as efficiently, effectively and transparently as possible."
The Public School Employees' Retirement System and the Pennsylvania State Employees' Retirement System manage a combined $78 billion in assets for more than 854,000 state and school employees and retirees.
The PSERS audit will cover July 2013 through the end of the audit work, DePasquale told reporters on a conference call, while SERS will go back to January 2013.
"The main thing is to find out ways they can do things better to save a lot of money and put it back into the two systems," de Pasquale told reporters on a conference call Monday. "This has been building for quite some time."
One emphasis will be how much in fees the funds pay to outside managers. Another will be to determine whether the funds follow the 1978 state Public Employee Pension Forfeiture Act and its associated regulations for public employees convicted of certain crimes relating to public office or public employment, and whether to expand the list of crimes that would warrant forfeiture.
Other objectives will be to determine whether the systems' governance structures, investment expertise, and resources provide adequate oversight of investment operations; and to determine how well they minimize risk.
Pennsylvania's unfunded pension liability is estimated at roughly $70 billion, which bond rating agencies have cited, along with the commonwealth's frequent budget imbalance, in five downgrades over the past three years.
DePasquale expects to complete the audits next year. At least four in-house investigators will conduct the audits, possibly with external help.
"The audits will be identical in their scope and their goals to the one Bob Casey conducted [in 2002]," he said. "Obviously the numbers will be different."
Casey, the auditor general at the time and now the state's senior U.S. senator, ordered the funds to produce investment documents. After they sued him, the Commonwealth Court of Pennsylvania upheld Casey's authority in a 6-1 decision in October 2004.
"I don't think we'll go through anywhere near what Bob Casey went through," said DePasquale. "For openers, the mood of the public has changed. There's also different leadership over there and then there's the court case.
"Glen Grell has already reached out to us," he said of PSERS executive director Grell, a former state representative from suburban Harrisburg.
