Two Top Pennsylvania Pension Fund Officials to Retire Amid Federal Probe

Link:https://www.wsj.com/articles/pennsylvania-pension-cio-jim-grossman-to-resign-amid-federal-probe-11637243641

Excerpt:

Two top officials at Pennsylvania’s largest pension fund are retiring amid a federal investigation and calls by some board members for their ouster.

The board of Pennsylvania’s $64 billion Public School Employees’ Retirement System voted Thursday to approve resolutions accepting the retirement of Glen Grell, the executive director, and Jim Grossman, the chief investment officer. Board members approved plans for both men to stay on in temporary advisory positions and authorized the board chair to begin a search for their replacements.

The fund has been racked by turmoil since board members learned in March that a report of investment returns was too high. The accurate figure was low enough to trigger an increase in payments from employees that the plan serves. Investigations conducted by the fund haven’t found wrongdoing on the part of investment staff.

The board said in April that it had hired law firms to investigate the miscalculation and to respond to a federal grand jury subpoena requesting documents. The pension declined to comment on what information the grand jury is seeking.

Author(s): Heather Gillers

Publication Date: 18 Nov 2021

Publication Site: Wall Street Journal

Private equity investments continue to pose challenges for public pension plans

Link:https://reason.org/commentary/private-equity-investments-continue-to-pose-challenges-for-public-pension-plans/

Excerpt:

Private equity investments lack transparency and are difficult to value. As opposed to publicly traded securities, limited partnerships used by private equity managers can’t provide frequent performance updates and, as a result, advise stakeholders after the end of each fiscal year. This leads to a lag in reporting important details. Moreover, shares of companies owned by private equity funds are not publicly traded, meaning that their values can only be estimated, which is subject to potential bias. Private equity firms are also not obligated by the law to publish their lists of assets in accordance with Securities and Exchange Commission rules. While this information can be found on Bloomberg Professional Terminal, it is not available to the general public. This lack of transparency should be concerning to employees and retirees who rely on these funds and taxpayers who contribute to them.    

For the Pennsylvania teacher system, the management fees associated with private equity investments that the plan had to pay over the past four years ($4.3 billion) are more than the total amount members paid into the plan during the same time ($4.2 billion). The pension plan recently announced that member contributions will have to be raised going forward because of long-term investment results below the plan’s benchmark. As a point of comparison, the New York State Teachers’ Retirement System, which has double the assets of PSERS, reported 36% less in total investment fees and expenses than PSERS.

Author(s): Jen Sidorova

Publication Date: 12 Oct 2021

Publication Site: Reason

Wall Street Links to Pennsylvania Pension Fund Probed by SEC

Link: https://www.bloomberg.com/news/articles/2021-09-29/wall-street-links-to-pennsylvania-pension-fund-probed-by-sec

Excerpt:

A $66 billion Pennsylvania state pension fund under scrutiny for errors in calculating investment returns has been asked by securities regulators to turn over records related to possible gifts exchanges with dozens of Wall Street firms, according to a subpoena reviewed by Bloomberg.

The U.S. Securities and Exchange Commission issued the subpoena Sept. 24 to the Pennsylvania Public School Employees’ Retirement System, demanding information about the fund’s dealings with firms including Blackstone Inc.The Carlyle Group Inc.Morgan StanleyApollo Global Management Inc. and consultant Hamilton Lane Advisors

SEC Enforcement Division Senior Counsel Heidi Mitza asked that the pension fund supply “all Documents and Communications Concerning any compensation, remuneration, money, gifts, gratuities, trips or anything of any value” exchanged between representatives of investment managers, advisers, and consultants and any representatives of PSERS or the state, according to the subpoena. 

Author(s): Neil Weinberg

Publication Date: 29 Sept 2021

Publication Site: Bloomberg

Report: Teacher pension error traced to single miscalculation in April 2015

Link: https://www.thecentersquare.com/pennsylvania/report-teacher-pension-error-traced-to-single-miscalculation-in-april-2015/article_34d84a56-c306-11eb-a252-4b78895ea004.html

Excerpt:

The calculation error that upended the state’s largest pension fund has been traced back to a single month in 2015, according to an investigation from Spotlight PA.

The discovery came to light in a trove of documents obtained by reporters that found a tiny discrepancy that boosted the $64 billion Public School Employees Retirement System (PSERS) by a third of a percentage point in April of that year.

The consultant firm hired to review PSERS’ investment returns between 2011 and 2020, ACA Compliance Group, performed limited checks that skipped over the month in question, according to the report. The company that crunched the actual numbers, Aon, blamed the discrepancy on a data entry error.

No matter the fault, the miscalculation unraveled PSERS’ rate of return, dropping it from just above the mandated 6.36% threshold to prevent a contribution increase down to 6.34%. Now, about 100,000 workers who joined the system in 2011 or later will pay more beginning on July 1.

Author(s): Christen Smith

Publication Date: 1 June 2021

Publication Site: The Center Square

Pennsylvania’s Biggest Pension Racks Up Costs After Misreporting Returns

Link: https://www.wsj.com/articles/pennsylvanias-biggest-pension-racks-up-costs-after-misreporting-returns-11620990002

Excerpt:

The board of trustees overseeing the $62 billion Pennsylvania School Employees Retirement System has spent more than $1 million so far to investigate and contain fallout from an inaccurate report on investment results delivered late last year. The report led to a mistaken conclusion that no increase in employee pension contributions would be needed this year.

The system’s trustees have hired batteries of lawyers since the mistake was revealed. The board said in April that it had hired law firms to conduct an investigation into the miscalculation and to respond to a federal grand jury subpoena requesting documents. It couldn’t be determined whether the subpoena relates to the miscalculation.

…..

However, in March the pension system said that the actual nine-year return came to 6.34%, triggering an increase in employee pension contributions reportedly affecting some 100,000 workers whose contributions will increase by 0.50% to 0.75% starting July 1. For instance, a school worker who earns about $45,000 annually would have roughly $8.65 withheld from each biweekly paycheck, the system’s website explains.

Author(s): Preeti Singh

Publication Date: 14 May 2021

Publication Site: Wall Street Journal

FBI Said to Seek Evidence of Kickbacks, Bribery at Pennsylvania PSERS

Link: https://www.ai-cio.com/news/fbi-said-to-seek-evidence-of-kickbacks-bribery-at-pennsylvania-psers/

Excerpt:

Subpoenas indicate that the FBI and federal prosecutors are seeking evidence of kickbacks and bribes in an investigation of the $62 billion Pennsylvania Public School Employees’ Retirement System (PSERS)’s misstatement of its 2020 investment performance and its real estate investment in Harrisburg, Pennsylvania, according to The Philadelphia Inquirer.

In December, PSERS’ board of trustees certified the contribution rates for its members. The board was told by its general investment consultant and another firm that the retirement system’s nine-year performance figure was 6.38%, which was just high enough to avoid triggering additional contributions under state law.

……

The court orders reportedly reveal that the FBI and prosecutors are investigating possible “honest services fraud” and wire fraud. Under a 2010 US Supreme Court ruling, federal prosecutors need proof of illegal payments to seek criminal charges against state officials for not providing honest services, the Inquirer reported.

No one at PSERS, including the executives who received subpoenas, has been accused of any wrongdoing.

And according to a report in The Wall Street Journal, PSERS’ board of trustees has spent more than $1 million and counting in its investigation of the reporting error.

Author(s): Michael Katz

Publication Date: 19 May 2021

Publication Site: ai-CIO

PSERS bet big on this scrubs brand whose IPO boosted a Steelers owner’s billions

Link: https://www.inquirer.com/business/figs-scrubs-psers-steelers-tull-ipo-20210602.html

Excerpt:

Figs Inc., which sells stylish hospital scrubs, has pulled off a successful public stock offering that has enriched a Pittsburgh investor along with Pennsylvania’s beleaguered school pension fund and other early backers, at least on paper.

Investors’ appetite for attractive new stocks appears to have paid off for Thomas Tull, a billionaire tech investor and Steelers part-owner, by more than $20-$1, while quadrupling the PSERS pension fund’s investment — if it can cash out its shares at today’s bullish prices.

Early private investors typically face a “lock-up” period, often six months, before they can sell all shares. The stock could gain value or crash before the shares are sold.

Still, a big Figs payday would be a boost to beleaguered PSERS chief investment officer James Grossman. His team’s complex and often secretive investments have been criticized by a growing reform faction of PSERS trustees who say the fund could do better in low-cost index funds.

Author(s): Joseph N. DiStefano

Publication Date: 2 June 2021

Publication Site: The Philadelphia Inquirer

Internal PSERS documents show how Pa’s biggest pension fund got key financial calculation wrong

Link: https://www.inquirer.com/business/psers-pension-error-mistake-teachers-fbi-20210530.html

Graphic:

Excerpt:

After Pennsylvania’s biggest pension plan botched a crucial financial calculation, the FBI launched an investigation, the fund’s board began its own probe, and 100,000 public school employees suddenly faced paying more into the retirement system.

Now The Inquirer and Spotlight PA have obtained new internal fund documents that shed light on that consequential mistake. The material traces the error to “data corruption” in just one month — April 2015 — over the near-decade-long period reviewed for the calculation.

The error was small. It falsely boosted the $64 billion PSERS fund’s performance by only about a third of a percentage point over a financial quarter. Even so, it was just enough to wrongly lift the fund’s financial returns over a key state-mandated hurdle used to gauge performance.

The documents reveal that a fund consultant, Aon, blamed the mistake on its clerical staff for inputting bad data. The material also shows that even though the fund hired a consultant, the ACA Compliance Group, to check the calculations, the consultant made only limited checks, and skipped over the month with the critical errors.

Author(s): Joseph N. DiStefano, Craig R. McCoy, Angela Couloumbis

Publication Date: 30 May 2021

Publication Site: Philadelphia Inquirer

Teachers union demands leadership changes at embattled PSERS pension fund

Link: https://www.post-gazette.com/news/state/2021/05/21/Teachers-union-demands-leadership-changes-at-embattled-PSERS-pension-fund/stories/202105210131

Excerpt:

A union that represents 61,000 schoolteachers statewide called on most of the board of the Pennsylvania State Employees’ Retirement System to resign amid an ongoing FBI investigation.

“Through alleged errors and omissions, and under a shroud of secrecy, this PSERS Board appears to have jeopardized the present and future financial security of our Commonwealth’s most dedicated public servants,” Arthur Steinberg, president of the Pennsylvania chapter of the American Federation of Teachers, wrote in a letter to PSERS board members.

In the letter, Mr. Steinberg called for every board member appointed prior to January 2021 to immediately resign. That would reduce the 15-member board to two: the newly elected State Treasurer Stacy Garrity, a Republican, and state Sen. Katie Muth, D-Montgomery County.

Author(s): WALLACE MCKELVEY, pennlive.com

Publication Date: 21 May 2021

Publication Site: Pittsburgh Post-Gazette

Pennsylvanians pay extra for public pensions

Link: https://www.inquirer.com/business/psers-teachers-cost-deficit-shared-risk-sers-pension-20210424.html

Graphic:

Excerpt:

Forced to cover the higher pension checks, state and local taxpayer funding for PSERS, the big retirement plan for public-school educators, has risen year after year, soaring from just over $600 million in 2010 to $5 billion this year.

Now a little-noticed provision of a reform passed in 2010, known as the “shared risk” rule, has come back to haunt PSERS officials — and teachers, too.

Under the rule, teachers, not just taxpayers, must pay more into the $64 billion pension system whenever profits fall short on investments.

In an embarrassing admission, its board said on Monday that the policy meant many teachers will face a hike in their payments this year. This was the first time this has happened since the law was adopted.

The board for PSERS — the Public School Employees’ Retirement System — acknowledged it had previously endorsed an inflated number for investment returns, a figure it incorrectly thought was just high enough to spare teachers any increase.

Author(s): Joseph N. DiStefano

Publication Date: 24 April 2021

Publication Site: Philadelphia Inquirer

Which Public Pension Funds Have the Highest Holdings of Alternative Assets? 2021 Edition

Link: https://marypatcampbell.substack.com/p/which-public-pension-funds-have-the

Graphic:

All the data for alternative allocation 2001-2020, with key percentiles plotted as lines

Excerpt:

What you see in that graph is a data point for each of the plans I know their asset allocation for, with the median, 25th percentile, and 75th percentiles marked out so you can see the allocations increasing.

That pattern does not make me feel good.

Allocating more to alternatives doesn’t seem to get asset managers higher returns. But the group is generally sliding upwards in their allocations, and I’m very unhappy about this.

Author(s): Mary Pat Campbell

Publication Date: 11 May 2021

Publication Site: STUMP at substack

F.B.I. Asking Questions After a Pension Fund Aimed High and Fell Short

Link: https://www.nytimes.com/2021/05/11/business/dealbook/psers-pennsylvania-fund-fbi.html

Excerpt:

The search for high returns takes many pension funds far and wide, but the Pennsylvania teachers’ fund went farther than most. It invested in trailer park chains, pistachio farms, pay phone systems for prison inmates — and, in a particularly bizarre twist, loans to Kurds trying to carve out their own homeland in northern Iraq.

Now the F.B.I. is on the case, investigating investment practices at the Pennsylvania Public School Employees’ Retirement System, and new questions are emerging about how the fund’s staff and consultants calculated returns.

…..

The error in calculating returns was a tiny one, just four one-hundredths of a percentage point. But it was enough — just barely — to push the fund’s performance over a critical threshold of 6.36 percent that, by law, determines whether certain teachers have to pay more into the fund. The close call raised questions about whether someone had manipulated the numbers and the error wasn’t really an error at all.

…..

“If you can’t change the benefits, and you can’t change the contributions, the only lever left for these people to pull is investment policy — that’s it,” said Kurt Winkelmann, a senior fellow for pension policy design at the University of Minnesota’s Heller-Hurwicz Economics Institute. “And that exposes younger beneficiaries and taxpayers to a lot of risk.”

Author(s): Mary Williams Walsh

Publication Date: 11 May 2021

Publication Site: New York Times