It’s long past time for PSERS to embrace transparency, accountability | Editorial
Despite a key change to the pension plan’s investment strategy, the agency’s problems continue to go far deeper than its financial portfolio.
It only came after an FBI investigation, subpoenas from the U.S. Securities and Exchange Commission, and sustained criticism about a lack of transparency from some of its own board members, but the Pennsylvania Public School Employees’ Retirement System (PSERS) has finally agreed to change one of the most fundamental ways it does business.
The beleaguered agency, which manages a $70 billion pension plan for about a half-million working and retired educators, has for years faced criticism from segments of its own board about its investment strategy — which focused on high-fee, “private” Wall Street investments, including hedge funds, rather than more traditional financial tools like stocks.
In a shift, the agency’s board earlier this month approved selling off those expensive investments and moving toward a more conventional portfolio. Historically, the system has had roughly one-fifth of its investments in stocks; most other pension plans have about half of their investments in stocks.
» READ MORE: SEC joins PSERS investigation
Senior executives at the agency also updated their financial statements to more accurately reflect their involvement in companies that the pension system has invested in, blaming bad legal advice for the earlier omission of that information.
While this board is in favor of moving away from expensive and underperforming investments and toward a more mainstream pension management style, it has become increasingly clear during this crisis that the system’s problems go much deeper than just poor investment strategy or questionable advice from lawyers.
Far more troubling is the continued crusade by some of the agency’s board members and executives to avoid any serious commitment to transparency and accountability. Board member Richard Vague, who also serves as the state’s banking secretary, encouraged his colleagues to approve the change in investment strategy as a way to make news articles “go away.” Other members of the agency’s board sought to impose a gag rule on their colleagues.
» READ MORE: PSERS agrees to redirect investments away from hedge funds
The board’s resistance to transparency has grown so pronounced that it has even helped forge an unlikely bipartisan collaboration between former state Treasurer Joe Torsella and his successor, Stacy Garrity. Torsella and Garrity filed briefs in support of State Sen. Katie Muth’s lawsuit alleging that the board has kept information from her. (All three serve on the system’s board.)
Public scrutiny may be inconvenient for those who hold power and control public money, but it is essential — for the sake of both sound fiscal management and effective government policy. And it’s thanks to public scrutiny that the fund is steering away from wasteful and counterproductive investments. Besides the change in investment strategy, one way that the agency can work to restore trust would be to sideline the system’s executives for the duration of the federal probe, a step that this board has previously suggested.
Whether the pension plan’s executives and their supporters on the system’s board like it or not, accountability is a key part of any form of public service. Answering questions about the fund, whether from journalists, the public, or the agency’s own board members, isn’t an intrusion or an inconvenience, it is a key part of making the fund — and democracy itself — work.