Board members at the PSERS fund, from both the dissident and pro-management blocs that divide the panel, now want to end the practice allowing staff to stay at highly expensive hotels where Wall Street financiers host meetings, regardless of the cost. Instead, the board members said, its employees could get a room someplace cheaper and take a cab or walk over.
The action follows an Inquirer article in April that for the first time revealed the heavy spending by 40 or so members of the investment office as they travel the world to check on $67 billion in pension fund investments for 500,000 retired and working teachers.
The story detailed hotel charges that included a $1,178 overnight stay in New York for one person, a $1,144 overnight stay in Boston and a $955 overnight stay in Beverly Hills, among others. Plane costs were even more expensive, paced by a round-trip fare to London for $15,627. That was one of 15 trips in which the fare was more than $11,000.
Such costs are borne ultimately by taxpayers. But under PSERS’ convoluted and opaque travel policy, outside money managers hired by the fund would typically make all travel arrangements and pay up front for airfare, hotel bills, and meals. The managers would then bill the pension plan.
Thus, the board, the public and even the travelers had little knowledge of the true cost of travel. Critics said the practice encouraged heavy spending and a too-cozy relationship between the investment office and the money managers.
For PSERS, the Public School Employees’ Retirement System, the disclosure of the unchecked travel spending was one more embarrassment in a rocky year. The fund has also been grappling with an FBI investigation into its botched calculation of investment profits and into its spending on real estate near its Harrisburg headquarters.
In April, the PSERS board disavowed its earlier calculation for its return on its investment as false and too high. It adopted a new and lower figure for investment profits. Under state law, this in turn triggered an increase in the required payments into the public pensions system by 110,000 working teachers and other public school staff. The higher deductions from their pay kicked in this month.
Critics say investment performance has been lackluster for years and contend that the PSERS financial staff has been too enamored of hedge funds and others shopping high-fee private-equity investments.
In a previous reform announcement, the plan has said it would no longer hand off the job of booking travel to money managers. Now, staff must make their own travel plans.
In a wide-ranging board debate Wednesday in Harrisburg, Suzanne Dugan, an outside lawyer who advises the fund on financial matters, seemed less than enthusiastic about the travel changes.
Dugan, the board’s fiduciary counsel, warned that the shift to in-house booking might increase costs. Some PSERS executives say the fund might end up paying double for travel, once for its own charges and again in obligated payments to money managers. Some contracts with money managers currently require the fund to cover travel.
Others disputed this argument, saying the shift might mean the staff would take the hint and attend meetings remotely at a fraction of the cost. Maybe next year, said board member Nathan Mains, leader of an association for school boards, the investment staff would “decide not to fly to Paris.”
Dugan also characterized the money spent on travel as “a rounding error,” as such a small expense compared with the billions PSERS invests, that it was “not significant in any way, shape or form to the size of the pension fund.”
But critics say the lavish travel spending is bound to influence staff and could be a factor in the fund’s poor performance. “PSERS public pension staff make decisions that impact the futures of every public school teacher and support staff in the commonwealth,” former state Treasurer Joe Torsella, who has returned to the PSERS board, told The Inquirer in April. “When the biggest and richest money managers on Wall Street fly them around the world, putting them up in extravagant hotels like the Beverly Hills Hotel and the Ritz, and wining and dining them on trip after trip, it isn’t to serve the interests of taxpayers or retired teachers, but the interest of Wall Street.”
Before COVID-19 curtailed trips last year, the fund spent $383,000 on travel in 2017, $519,000 in 2018 and $611,000 in 2019, newly public reports show. Of that, the 15-member volunteer PSERS board itself ran up bills of $105,000 to go to conventions over the three years.
The investment office dominates the travel. Its staff’s most frequent destination has been New York, followed by London, and then Boston. Philadelphia was the fourth most listed destination in records. Destinations have included Beijing, Bermuda, Dublin, Edinburgh, Hong Kong, Lisbon, Macau, Madrid, Paris, Saudi Arabia, Singapore, Seoul, Stockholm and Sydney. Staffers have also attended meetings in dozens of U.S. cities as well as such tourism center as Orlando, and Park City, Utah.
PSERS wasn’t alone in permitting money managers to book travel for its staff. So does the other big Pennsylvania pension fund — known as SERS, for the State Employees’ Retirement System. SERS said Thursday that it would continue using money managers to arrange trips, unlike PSERs.
At the PSERS meeting Wednesday, much of the talk focused on hotel charges. PSERS executive director Glen Grell told the members that the fund had long had an exemption from rules imposed by the governor’s office aimed at limiting hotel charges by state employees. In cases of an “event headquartered at a certain hotel, it gives us permission to stay at that hotel, no matter what the rate is,” Grell said.
Susan C. Lemmo, a board member from the PSEA teachers union, said that at times travelers had little choice about where to stay.
For some conferences, she said, “things are scheduled very tightly and there really isn’t a way to manage getting back and forth to meetings.”
Melva Vogler, a retired teacher who at 87 is the board’s oldest member, agreed.
“For me, running back to my room sometimes is necessary,” she said. “Running across to another hotel is not always easy for me.”
In the end, the board members unanimously agreed that travelers should seek out cheaper hotels when possible. The group will urge that the full board adopt that policy.
State treasurer Stacy Garrity, who joined the board this year by dint of her position, told her colleagues it was past time to toughen the rules.
“In my private-sector world, many, many times I’d go down the block and stay at a hotel half the price,” Garrity said. “I’m very, very surprised PSERS doesn’t do that, as well.”