PSERS, the embattled pension plan for Pennsylvania schoolteachers, has confirmed that federal authorities are using a grand jury as a tool in their investigation of the $64 billion fund.
“PSERS has been served with a grand jury subpoena for documents and is cooperating fully with the request by the U.S. Attorney’s Office in the Eastern District of Pennsylvania,” PSERS said in a new statement, issued before a closed board meeting Friday that was the latest in a string of secret sessions by the fund’s board.
The Inquirer reported in late March that FBI agents had sought information from leaders of the pension plan. PSERS itself confirmed an ongoing federal investigation on Tuesday when it hired lawyers to address that probe.
The use of a grand jury indicates that the probe has moved beyond its preliminary stages. Among other uses, prosecutors who oversee grand juries can utilize them to compel testimony by threatening reluctant witnesses with contempt of court.
In its statement, PSERS cited only documents as subject to subpoenas, so far, suggesting that the prosecutors have yet to call agency executives or other employees before the grand jury.
PSERS, more fully, the Public School Employees’ Retirement System, has hired four law firms in the last month for special work. One was explicitly hired to address the federal investigation into the pension fund.
On Friday PSERS hired the New York firm Sidley Austin LLP to “represent and advise” the board regarding PSERS “and its employees” in connection with “a Federal investigation” of unnamed staff.
While the precise focus of the federal probe remains unclear, the board said the other two firms would look into a scandal that emerged earlier — the board’s endorsement of a false figure for the fund’s investment returns for 2011 to 2020. This figure determines how much working teachers and taxpayers must pay to support the fund.
That investment report, approved in December after the plan’s management vouched for its accuracy, showed returns averaged 6.38%. This figure was below the fund’s official goal, but just high enough to avoid triggering a state “risk-sharing” provision that would have forced some 100,000 school employees to increase payments into the pension fund. Instead, only taxpayers were to see an increase.
The average school employee now pays around 7.5% of pay to cover pension expenses. If investment performance had fallen below the risk-sharing threshold, that rate might have increased to as much as 8.25%.
According to people familiar with the federal investigation, the FBI has in part been seeking information about particular investments. The pension plan pays more than $700 million a year in fees to Wall Street managers of hedge funds, private equity, real estate, commodities, and other investments.
In its latest statement, the plan said it was “confident that if any issues are identified that require correction, they will be resolved, and appropriate action will be taken.” That seemed in part a reference to the unresolved issue of what the board will adopt as a new figure for the investment return.
Spokesperson Evelyn Williams declined to answer additional questions.
The board and its audit committee met Friday afternoon, for the most part behind closed doors, in the eighth such “special” meeting since early March, when it first revealed the erroneous vote at the December meeting.
PSERS has not announced actions against any staff members in connection with the federal probe, nor in relation to the mistaken investment figure.