Public pension systems across the country have gained attention for being inadequately funded to meet future expenses, and Pennsylvania is no exception. While the failure of lawmakers to ensure that sufficient money is flowing into pension funds is a significant part of the problem, a less-examined issue stems from how the existing money in the funds is managed.
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In that vein, the board that makes decisions for Pennsylvania’s Public School Employees’ Retirement System has come under fire recently as a result of its money management decisions, including what some observers describe as a failure to make clear the costs of certain investments.
Auditor General Eugene DePasquale blasted the PSERS board in a news release, for decisions he described as “mind-boggling.”
“The public school employees’ retirement system seems to have completely ignored warnings from just a month ago calling for full transparency and accounting for every cent it costs to manage retirement plans for teachers,” DePasquale said. “[The board voted to give] private equity managers another $1.6 billion of taxpayer and member funds for shadowy investments without first disclosing how much the Wall Street managers will keep for themselves.”
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DePasquale lauded two board members, Treasurer Joe Torsella and Banking Secretary Robin Wiessmann, for voting against a series of investment decisions where the costs of investments would not be disclosed during the board’s most recent meeting.
“These two board members are looking out for taxpayers and pensioners,” he said. “The rest of the board should do the same. Instead of funding lavish lifestyles for Wall Street money managers, the focus should be on getting the best investment return for the lowest possible cost.”
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DePasquale vowed to keep an eye on the situation, and his office noted that a pension review commission was told just last month that Pennsylvania’s public pension funds had “paid $3.8 billion in hidden fees over 10 years, mostly to private equity fund managers.”
The chief investment officer of PSERS, James Grossman Jr, painted a picture of a healthy fund being well-maintained, while blaming any setbacks on external factors.
“Active management had a strong year during this past fiscal year, adding over $650 million, net of all fees and costs, in incremental value over the Board’s passive policy benchmark,” he said in a news release. “However, most of the returns were earned in the first half of FY 2018. The second half of FY 2018, and continuing into FY 2019, has been more challenging as interest rate hikes in the U.S. are starting to have an impact along with slowing global growth.”
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