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.
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
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.
The board of Pennsylvania’s biggest pension fund adopted an inflated number for its investment performance even after the state treasurer raised skeptical questions about the calculation last summer, newly obtained documents show.
That decision by the PSERS board has emerged as a costly and disruptive mistake, raising the possibility that the $64 billion pension fund for teachers may soon have to hike their payments to support the mammoth but underfunded plan. The panel is to meet Monday to consider doing that.
In his August 2020 letter, then-Treasurer Joe Torsella raised doubts about a decision by the fund’s professional staff to go back almost a decade to revise — and improve — figures for past investment performance.
The board in December found that PSERS yearly investment returns had averaged 6.38% over the last nine years — just above the 6.36% threshold needed to avoid an increase in pension payments from 100,000 school employees hired since 2011.
In 2010, the state adopted a so-called “risk sharing” mandate that requires school staff to pay more, as taxpayers do, when PSERS investments underperform. The law mandated that the review in 2020 look at average returns over the past nine years.
The bills are high because PSERS for years has operated under a system in which it often never knew the true costs of travel. The fund repeatedly left the job of booking tickets, hotels, and meals to the outside money managers who invest the fund’s money. The charges were later buried in overall travel bills that the managers submitted to the fund to be paid by taxpayers and teachers.
In recent years, the fund has been roundly criticized for its lagging investment performance, especially given that the plan, underfunded by many governors and legislatures, is $44 billion short of the money to pay all future retirees
Uri Monson, the chief financial officer of the Philadelphia School District, the state’s largest, in a social media posting called for “an independent investigation” by State Attorney General Josh Shapiro or newly elected Auditor General Timothy DeFoor.
“If there is any evidence of board members or anyone else directing staff to create a false report,” Monson said, “they should be fired and charged with Honest Services Fraud.”
In a reform imposed by the legislature and governor, the fund adopted a so-called risk-sharing rule some years ago that requires education workers to pay extra if their pension fund falls short of its investment target.
New Jersey Gov. Phil Murphy’s $44.8 billion budget proposal, unveiled last week, is a boon for labor and public sector pensioners, thousands of middle class residents and schools across the state.
New Jersey’s public worker pension plan has been underfunded for decades, but lawmakers and former Gov. Chris Christie began a ramped-up payment plan. Murphy wants to supercharge that plan and reach full payment a year early under the budget.
The payment would climb by $1.6 billion over the current fiscal year. The payment doesn’t translate to a boost in pensions for retirees. But it meets what actuaries have determined is the amount the state must pay to carry its share of the cost of pension payments to hundreds of thousands of retirees.
As treasurer, Torsella automatically got a board seat on Pennsylvania’s two massive pension plans, the $60 billion PSERS for public school employees and the $30 billion SERS for state workers. (The letters stand for the Public School Employees’ Retirement System and the State Employees’ Retirement System.)
Everything about them is supersized. Together, they serve more than 700,000 retired and working Pennsylvanians. Taxpayers pay $7 billion into the funds annually, up from near zero in the early 2000s, and five times what employees contribute. Despite that, the plans are hugely underfunded — collectively short $65 billion.
Their health is heavily dependent on their investments. Once on board, Torsella asked to see investment contracts and fee deals with outside money managers — and was told they were not public. It was as if they were somehow more confidential than a town paving contract or a sanitation worker’s salary.