Investigations into PSERS have cost the teachers’ pension plan $4.5 million in legal and adviser bills since March 2021, state records show.

That’s enough to pay 170 retirees the average pension of $26,000 for a year. The system invests $75 billion for half a million working and retired members, at a cost to taxpayers of $5 billion a year, and another $1 billion from school staff payroll deductions. Investment profits also contribute to PSERS.

The bills are piling up as trustees of the system, known as the Public School Employees’ Retirement System, are under two federal investigations and are trying to chart a new direction after senior executives departed in recent months.

Trustees in March elected state banking secretary Richard Vague to head the board’s investment committee. State Rep. Matt Bradford (D., Montgomery) will head the governance committee charged with making the agency more responsive to its own trustees.

Vague and state treasurer Stacy Garrity were among the board members who blamed the plan’s lagging returns, compared to other state pensions, on its policy for buying too many underperforming hedge funds, and not enough U.S. stocks or low-priced index funds, during the long bull market that began in 2009.

They had also called for the ouster of PSERS executive director Glen Grell and chief investment officer James H. Grossman Jr., who both agreed to leave last year, as did Grossman’s deputy Charles Spiller and chief counsel Jackie Wiess Lutz. A committee appointed by board chair Chris Santa Maria, a history teacher from Lower Merion, and headed by Sue Lemmo, an art teacher from Curwensville, north of Altoona, is hunting for executive replacements.

And still in progress are the two federal investigations:

- U.S. prosecutors in Philadelphia have been reviewing the system’s exaggerated investment returns for 2011-20, which led PSERS to reverse course and levy higher pension contributions from 100,000 mostly younger teachers. The feds are also looking into a series of Harrisburg land purchase decisions, which an internal review found were not shared by fund managers with trustees.

- The U.S. Securities and Exchange Commission is also investigating, both the miscalculation and possible conflicts of interest arising from travel and other gifts given PSERS staff by some of its dozens of Wall Street investment contractors.

To deal with those investigations and related issues, PSERS during the year ended March 31 has paid out:

- $1.89 million to the Philadelphia law firm Morgan Lewis and Bockius, which has advised PSERS on its response to the federal probes;

- $1.08 million to Seattle-based Verus Advisory Inc., hired to recommend investments and review PSERS procedures while staff coped with the investigations;

- $575,300 to New York law firm Pillsbury Winthrop Shaw Pittman, which represents PSERS’ board in the federal investigations.

While advising the agency, Morgan Lewis and Pillsbury attorneys have also tried to derail a lawsuit by PSERS board member and state Sen. Katie Muth (D., Montgomery), who contends that as a trustee she should have access to investigation records and PSERS’ secret contracts with Wall Street firms who collect over half a billion dollars a year in PSERS fees.

A Commonwealth Court panel rejected all the fund’s defense arguments and is speeding the case toward trial. “Pillsbury lost the first round quite completely,” as Vague put it in a meeting with trustees last month, adding that he felt the board ought to settle with Muth.

“There is no benefit” to PSERS members from continuing the case, since the judges ruled Muth is in fact “authorized” to receive the records she seeks, agreed Christopher Craig, an aide to state treasurer Garrity.

On Monday the board voted to hire yet another law firm, Post & Schell, as it prepares to file its response to Muth’s lawsuit, which is due April 15. That firm is replacing Pillsbury as counsel to the PSERS board and to chairman Santa Maria, according to PSERS spokesperson Evelyn Williams. Morgan Lewis is now representing PSERS and its former executive director Grell. Williams declined to comment on why Pillsbury no longer represents PSERS.

Is PSERS ready to give Muth and other trustees the documents? “We have a response due in court next week,” said PSERS’ Williams, declining to comment on the agency’s plans before then.

Other payments include:

- $588,500 to Womble Bond Dickinson, a British and American law firm that wrote an internal report examining the issues that sparked the federal prosecutors’ probe but stopped short of placing blame.

- $182,700 to Kleinbard LLC, a Philadelphia firm that has represented Grossman, PSERS’ former chief investment officer, in connection with the investigations.

PSERS bylaws allow the agency to spend up to $40 million per year, defending or advising staff in response to civil or criminal investigations. PSERS has said eight employees were represented by lawyers in connection with the investigations.

If convicted of crimes, staff are supposed to repay the funds. No one has been accused of wrongdoing.

- $181,200 to Pietragallo, Gordon, Alfano, Bosick and Raspanti, a Philadelphia firm representing former chief executive Grell in connection with the investigations;

- $48,300 to Saul Ewing Remick & Saul, a Philadelphia firm that has also represented PSERS staff in connection with the investigations.

The board has also agreed to pay $16,000 to Lewis Brisbois Bisgaard & Smith, a Wilmington firm that advised PSERS staff in March 2021 after they were served with grand jury subpoenas.

And the board in February agreed to hire Blank Rome of Philadelphia to represent it in a Philadelphia Common Pleas lawsuit brought by Kevin Steinke, a Delaware County teacher, against two of PSERS’ elite financial services contractors, Aon Investments USA, of Chicago, and Hamilton Lane Advisors, of Conshohocken.

Aon prepared information used by PSERS in its erroneous profit report; Hamilton Lane, based in Conshohocken, recommended many of the private and hedge fund investments PSERS has purchased. Both firms are contesting the suit’s allegations.

Vague, the new investment committee chair, was one of the board members pushing PSERS to reduce its focus on costly alternative investments.

But that may be hard to pull off. Some of its hedge fund investments are now publicly traded and are technically “public equities.”

For example, the annual list of PSERS’ 10 largest “public equity” investments shows that one is a London-based hedge fund, two are invested mostly in China stocks, another focuses on Japanese junk bonds, and another is a private-equity investment firm. .

Another issue is whether the reformers will be around long enough to make substantial changes in the 15-member board’s investment focus. Vague, former state treasurer Joe Torsella, and state education secretary Noe Ortega are appointees of Gov. Tom Wolf, who leaves office in January. Their replacements will be named by Wolf’s successor.

State Rep. Frank X. Ryan (R., Lebanon), who criticized PSERS’ high-fee investments but stopped short of demanding managers’ ouster, is also slated to leave office in January.