The pension fund for Pennsylvania state workers has overhauled its staff travel rules and will no longer permit hedge funds and other outside firms to book flights and hotels for the fund’s investment experts.
The unanimous decision by the board of the $38 billion State Employees’ Retirement System, or SERS, follows that of its bigger sister fund for state teachers, which adopted the same reform five months ago. That fund, known as PSERS, acted after The Inquirer disclosed a pattern of lavish travel by its investment staff, such as a $15,627 round-trip airfare to London and a $1,178 overnight hotel stay in New York.
For years, the two taxpayer-supported pension plans, like others around the country, have used what critics say were deliberately obscure and convoluted travel policies under which they permitted hedge funds and other vendors to make arrangements for fund employees when they traveled to check on investments. The outside firms would bury the specific charges in subsequent billings so the funds essentially blinded themselves to what they were paying.
But detractors, notably former Pennsylvania Treasurer Joseph Torsella, warned when he was a board member of both funds that the luxury trips reflected a far too cozy relationship between the systems’ investment staff and the private firms they negotiated with.
Now, the two pension plans are booking all travel in-house and paying for it directly.
SERS pays $3.6 billion yearly in retirement checks to 133,000 former state workers. Its income last year included $3.9 billion from investment profits, $3.2 billion from taxpayers, and $410 million from active state workers. Even so, it faces a $22 billion deficit between obligations and investments.
PSERS — the $73 billion Public School Employees’ Retirement System — is twice as large. It pays benefits to 250,000 retired teachers and other former school workers.
Last week, the fund for state employees also posted its first-ever report on travel by its 28 investment professionals after The Inquirer asked about its pledge to make trip expenses public. The one-sentence report simply said no staff took a trip during the first year of the COVID-19 pandemic. SERS revealed nothing about previous years.
Unlike SERS, the PSERS fund in March posted three years of travel reports, dating back to 2017. That fund said its 40 investment experts spent $300,000 annually on travel before COVID hit. PSERS acknowledged, however, that its disclosure had big holes, omitting a lot of meals and specific trips.
The reports showed that the most frequent destinations for PSERS staff was New York, followed by London, Boston, and Philadelphia. Other destinations included Beijing, Bermuda, Dublin, Edinburgh, Hong Kong, Lisbon, Macau, Madrid, Paris, Saudi Arabia, Singapore, Seoul, Stockholm, Sydney, and dozens of U.S. cities.
As for SERS, it also said that it had ended a 25-year-old loophole under which its 11 board members, chief executive, chief investments officer, and a top deputy were exempt from state limits on the expense of meals and travel. Like other state workers, they must follow a schedule that says, for example, that they can spend no more than $36 per person on a dinner in Philadelphia.
Unlike the fund for government workers, the PSERS plan has been roiled for most of the year by a continuing FBI investigation into financial mistakes by its board and its purchases of Harrisburg real estate. In September, the U.S. Securities and Exchange Commission joined in, asking PSERS in a subpoena about any acceptance of “money, gifts, gratuities, trips or anything of any value” by its staff. SERS said on Friday it has not received a similar SEC subpoena.
The SERS board adopted the new travel policies at a meeting Wednesday at which it also promoted Joseph A. Torta, 57, to serve as the plan’s next executive director. Torta, a 32-year SERS employee who is currently one of three top deputies, will replace Terri Sanchez, who has headed the agency since 2018. She has been paid $226,133 yearly; SERS said Torta’s pay is still being negotiated.
Sanchez, 60, who was to retire Dec. 31, is reportedly under consideration to become interim executive director at PSERS, whose chief executive last month agreed to retire amid the investigations.
SERS also named a new chief investment officer in June, promoting James G. Nolan, the third such executive in the last five years. Nolan, paid $325,009 yearly. was given an 8% increase over his predecessor, who was on the job just 11 months.
On Wednesday, the fund also set a round of pay hikes for the investment unit of about 4.5%. That’s double the pending pay hike due other fund staff under a union contract.