Officials whose constituents pay more than $5 billion a year into Pennsylvania’s mammoth public-school pension fund reacted with worry — and some with outrage — to its disclosure Friday of an “error” that exaggerated the fund’s profits. Gov. Tom Wolf called for greater scrutiny of the $62 billion fund, known as PSERS and Pennsylvania’s largest, saying that “strong oversight” by its board was “clearly warranted, given this apparent error.”
In a statement, Wolf said the board should “improve governance” after it completes an investigation into the mistake. Any board member who has not acted in the interest of the pensioners “should resign immediately,” he said.
PSERS did not answer questions submitted by The Inquirer.
The board’s initial endorsement of erroneous data in December meant that 100,000 teachers and other school employees avoided a threatened increase in pension payroll deductions, shifting at least $25 million more in annual costs to taxpayers.
“That’s the kind of stuff that makes people not trust government,” said State Rep. Torren Ecker, (R., Adams and Cumberland).
“This should be simple mathematics,” added Ecker, a member of the state House Appropriations Committee, where he said he looks forward to questioning pension officials when they next testify.
“The markets have been performing pretty well. The pensions are not. That’s really unfortunate,” he said. “My constituents want to see good financial management.”
Uri Monson, the chief financial officer of the Philadelphia School District, the state’s largest, in a social media posting called for “an independent investigation” by State Attorney General Josh Shapiro or newly elected Auditor General Timothy DeFoor.
“If there is any evidence of board members or anyone else directing staff to create a false report,” Monson said, “they should be fired and charged with Honest Services Fraud.”
In a reform imposed by the legislature and governor, the fund adopted a so-called risk-sharing rule some years ago that requires education workers to pay extra if their pension fund falls short of its investment target.
The target was a return of 6.36%. In December, the plan’s experts told the board that the fund had actually grown by 6.38% — just enough to spare teachers an increase.
But the fund admitted last Friday that the number was a mistake. It also gave its audit committee the authority to choose an independent outside counsel to conduct a special investigation.
The reversal came three months after the fund’s top command — its executive director, chief investment officer and board chairman — all insisted in a public board meeting that the performance data had been verified and could be relied upon. Although the board formally accepted the figure, several members, including then-state Treasurer Joseph Torsella, questioned the math and abstained from voting.
PSERS has not provided details of what went wrong. People familiar with the agency say outside consultants have complained that staff gave them bad data that exaggerated the fund’s performance.
“I am disgusted,” Monson wrote in another post. “It not only undermines the goals of shared risk pensions. It diverts attention from a poor performance, as compared to much cheaper index funds.”
Monson was Montgomery County’s chief financial officer when Shapiro, now attorney general, headed its board of commissioners in the early 2010s. In 2013, the county fired Montgomery County’s high-fee private-asset managers and instead invested country workers retirement in low-fee index funds.
Over the next five years the plan’s return was comparable to that of privately managed funds, but with lower fees, according to an Inquirer review.
In Harrisburg, PSERS officials insist that over decades-long periods, private investments have performed markedly above more conventional publicly traded stocks and bonds, even after paying money managers as much as $1 billion a year.
Attorney General Shapiro’s office “is aware of the issue and won’t hesitate to act if there is evidence that Pennsylvania law was broken,” spokeswoman Jacklin Rhoads said in a statement. Auditor General DeFoor “is monitoring developments and exploring possible options,” said his spokesman, Gary Miller.
Of the state’s two larger teachers’ unions, the Pennsylvania State Education Association didn’t respond to inquiries Monday, and Philadelphia Federation of Teachers said that the union had no comment.
In Wolf’s statement, he noted that he had reappointed Torsella to the board. His return, the governor said, would help guarantee that “mistakes like this do not happen in the future.”
Torsella, whose nomination is awaiting approval by the State Senate, is part of a dissident faction on the board that wants PSERS to use low-cost index funds rather than investments proposed by highly paid money managers.
State Treasurer Stacy Garrity, a PSERS board member by dint of her office, said on Friday that she welcomed the investigation. Garrity is part of the small bloc of board members who have voted against private investments recommended by staff.
Other board members, who include elected officials, Wolf appointees, and representatives of the teachers’ union, retiree and school-board groups, declined to answers questions, referring The Inquirer to agency staff.
“I just keep shaking my head about this appalling ineptitude. Both contributors and taxpayers should be outraged,” said Stephen Gring, retired superintendent of the Unionville-Chadds Ford School District in Chester and Delaware Counties, after reading PSERS’ statements.
The current board, he added, appeared to have trouble overseeing such a large, complex investment fund.
He added: “I’d be happy to give the PSERS board the name and phone number of my personal investment advisor.”
Caroline Fedena, who worked as a counselor at Sun Valley High School in Delaware County, was also highly critical.
“As a retired teacher and counselor, I have been incensed for a long time over their choice of expensive investment counselors when there are so many wiser and cheaper options,” she said.