Pennsylvania School Employees’ Retirement System, the commonwealth’s largest pension fund, is under the glare of a federal investigation.
PSERS, whose 15-member board acknowledged last month erroneous calculation by a consulting firm of its nine-year performance, has received a grand-jury subpoena for documents and said it is “cooperating fully” with the U.S. Attorney's Office in the Eastern District of Pennsylvania.
“PSERS is confident that if any issues are identified that require correction, they will be resolved, and appropriate action will be taken,” the $62 billion retirement fund said on its website.
The calculation of 6.38% growth over the nine years ending on June 30, 2020, was just 2 basis points above a 6.36% shared-risk threshold, under which nearly 100,000 school employees would have faced a higher contribution rate.
Last week, the fund’s board hired law firms Pillsbury Winthrop Shaw Pittman LLP and Sidley Austin LLP to advise it on the federal investigation and “collateral issues.” In March, it retained Womble Bond Dickinson and Morgan Lewis to investigate the botched financial statement.
“The PSERS situation is extremely troubling, but because there’s an ongoing independent investigation I’m a bit limited to what I can share,” state Treasurer Stacy Garrity said at a recent Senate appropriations committee meeting in Harrisburg.
A message seeking comment was left with the U.S. Attorney’s Office in Philadelphia.
Garrity, as treasurer, sits on the boards of PSERS and the commonwealth’s other large pension fund, the State Employees Retirement System. Gov. Tom Wolf just appointed Democrat Joe Torsella, who lost his seat to Garrity in the November general election, to return to the PSERS board. Torsella has been a critic of PSERS and its business dealings with Wall Street firms.
Three PSERS board members, including Torsella, objected to the December numbers, according to Garrity. She also said Treasury last August notified PSERS management of discrepancies between PSERS’ comprehensive annual financial review and one of its investment consultant’s quarterly performance reporting.
The system has not named the consultant.
“It concerns my teachers, same thing on the State Employees Retirement System,” said Sen. Cris Dush, R-Brookville.
The $32 billion SERS is Pennsylvania’s other major retirement system.
“[What] seems to be lost in all the discussions so far is the undisputed fact that PSERS’ investment strategies have significantly underperformed over the past nine years, and this should concern all of us,” Garrity said.
The system is also under fire over alleged overspending on business trips. According to the Philadelphia Inquirer, the plan spent more than $1.5 million on travel over three years before the pandemic took hold. The newspaper reported that one taxpayer-paid investment manager in 2019 spent $15,627 for a flight to London.
PSERS said it has overhauled its travel policy.
Committee chairman Patrick Browne, R-Allentown, called for a continued push to merge the investment houses of both systems to make both more sustainable.
“It was something we were aggressively working on last term,” Browne said. “I look to continue that into this term. These issues transcend politics and I believe that this is something that on a bipartisan basis we can carry forward because it makes sense.”
