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.
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.
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
Forensic investigations in Rhode Island, North Carolina, Kentucky and Ohio reveal that gambling 30 percent or more on high-cost, high-risk, secretive alternative investments has exposed pensions to massively greater risks and reduced net returns. The time is ripe for legislators, regulators, and law enforcement to act to stop the looting.
A recent New York Times NYT-3% article revealed that putting more than half of the $62 billion Pennsylvania state teachers’ retirement fund’s assets into risky alternative investments hadn’t worked out well for the pension and had spurred an investigation by the FBI. The FBI is investigating reporting fraud—returns allegedly falsified to avoid increased worker contributions to the pension.
Law enforcement investigations into public pension funds that lie about their returns are long, long overdue.
As scientists with relevant expertise, we agree with the WHO director-general (5), the United States and 13 other countries (6), and the European Union (7) that greater clarity about the origins of this pandemic is necessary and feasible to achieve. We must take hypotheses about both natural and laboratory spillovers seriously until we have sufficient data. A proper investigation should be transparent, objective, data-driven, inclusive of broad expertise, subject to independent oversight, and responsibly managed to minimize the impact of conflicts of interest. Public health agencies and research laboratories alike need to open their records to the public. Investigators should document the veracity and provenance of data from which analyses are conducted and conclusions drawn, so that analyses are reproducible by independent experts.
Author(s): Jesse D. Bloom, Yujia Alina Chan, Ralph S. Baric, Pamela J. Bjorkman, Sarah Cobey, Benjamin E. Deverman, David N. Fisman, Ravindra Gupta, Akiko Iwasaki, Marc Lipsitch, Ruslan Medzhitov, Richard A. Neher, Rasmus Nielsen, Nick Patterson, Tim Stearns, Erik van Nimwegen, Michael Worobey, David A. Relman
Now, in a letter in the journal Science, 18 prominent biologists—including the world’s foremost coronavirus researcher—are lending their weight to calls for a new investigation of all possible origins of the virus, and calling on China’s laboratories and agencies to “open their records” to independent analysis.
“We must take hypotheses about both natural and laboratory spillovers seriously until we have sufficient data,” the scientists write.
The letter, which was organized by the Stanford University microbiologist David Relman and the University of Washington virologist Jesse Bloom, takes aim at a recent joint study of covid origins undertaken by the World Health Organization and China, which concluded that a bat virus likely reached humans via an intermediate animal and that a lab accident was “extremely unlikely.”
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.”
About 1,000 current and retired Ohio educators skeptical of the true financial shape of their $90 billion state pension fund are preparing to sue to force greater cooperation with a $75,000 self-funded investigation of its books.
The forensics audit, financed through money raised from members, is being undertaken by pension investment expert Ted Siedle — a former Securities Exchange Commission attorney, financial forensics investigator, and co-author of the book “Who Stole My Pension?”
The public records lawsuit will ask the Ohio Supreme Court to force the State Teachers Retirement System, serving some 500,000 active, inactive, and retired members, to release information that investment firms have claimed is proprietary or a trade secret.
Aides to the New York governor, Andrew M. Cuomo, repeatedly prevented state health officials from releasing the number of nursing home deaths in the pandemic.
The effort by Gov. Andrew M. Cuomo’s office to obscure the pandemic death toll in New York nursing homes was far greater than previously known, with aides repeatedly overruling state health officials over a span of at least five months, according to interviews and newly unearthed documents.
Mr. Cuomo’s most senior aides engaged in a sustained effort to prevent the state’s own health officials, including the commissioner, Howard Zucker, from releasing the true death toll to the public or sharing it with state lawmakers, these interviews and documents showed.
A scientific paper, which incorporated the data, was never published. An audit of the numbers by a top Cuomo aide was finished months before it became publicly known. Two letters, drafted by the Health Department and meant for state legislators, were never sent.
The Cuomo administration’s handling of nursing home death data now is the subject of a federal investigation, one of at least four overlapping inquiries into the governor and his administration. As of this month, more than 15,500 nursing home residents with Covid-19 have died.
The $64 billion Pennsylvania Public Schools’ Retirement System made the “emergency” hiring of an outside manager yesterday to take on the duties of chief investment officer James Grossman, the Philadelphia Inquirer reports.
Seattle-based Verus Investments will now handle “monitoring and oversight of investment” as the embattled pension system deals with “internal and external investigations,” including an FBI probe into its investing, PSERS says.
The fund’s investment of millions of dollars in real estate deals in Harrisburg is under federal investigation, while outside lawyers are looking into an “error” that inflated PSERS’ investment returns.
Officials atop Pennsylvania’s largest public pension system have received subpoenas from federal investigators, although the $64 billion Public School Employees’ Retirement System has yet to publicly discuss the nature or scope of the newly disclosed inquiry.
In addition to giving few details, pension system officials and board members — which includes state lawmakers, two members of Gov. Tom Wolf’s Cabinet and state Treasurer Stacy Garrity — have declined to answer questions publicly about what information federal investigators are seeking.
Garrity told lawmakers at a Senate Appropriations Committee hearing Tuesday that “federal subpoenas have been served on several PSERS management officials.”
PSERS is trying to depict the performance overstatement as an error but its body language says otherwise. It has launched an investigation of its three top staff members and has gone from denying that PSERS has any information that anything criminal had taken place to ducking the question.
The Inquirer described how three of PSERS’ 15 board members voted against a staff effort to say the return numbers were fine after some sort of not fully disclosed brouhaha with an outside consultant.
The “impact on PSERS tax exempt status” is alarming, and it’s frustrating that the article does not probe what the issue might be.
Needless to say, expect more shoes to drop as the FBI keeps digging. A friend who was the DA for Bridgeport, the most corrupt city in Connecticut, said the FBI aren’t the brightest bulbs but are relentless and as a result generally take down their targets.