The battle is being waged while public pension officials around the country struggle to cope with billions of dollars lost in the bear market, according to a Dow Jones report. It has been complete with rebuffed subpoenas, a court challenge, political posturing, intervention by the state attorney general, and pleas to the Pennsylvania legislature by retired teachers.
“In my memory, there’s never been another situation where funds have this type of disagreement and have made it a major issue,” Glenda Chambers, executive director of the National Association of State Retirement Administrators, told Dow Jones.
The funds are the Public School Employees’ Retirement System and the State Employees’ Retirement System, now worth a total of about $60 billion. Though the state auditor reviews their financial statements annually, they haven’t undergone a comprehensive review for 25 years, according to State Auditor General Robert Casey Jr.
Casey, a Democrat, says he wants to take a close look at how the pensions are managed, and scrutinize the 150 outside firms that are paid a total of $250 million to manage the funds’ investments. He is interested in how the funds select money managers and how the managers are monitored.
“We want to know did you have procedure for selecting them,” Casey told Dow Jones in an interview. “Even if you did follow the correct procedure, did you monitor them when the fund started suffering terrible losses, or did you just keep paying them and let them do what they wanted?”
Opposing Casey is State Treasurer Barbara Hafer, who wants to hire an outside auditor for the performance review. Hafer, a Republican who formerly held the state auditor general post, also sits on the board of both pension funds.
The fight flared up last November, after the funds and the state auditor held negotiations about a possible performance review. The treasurer said she wanted an outside firm to do the audit, and Casey responded by issuing subpoenas for documents. The funds failed to comply and hired a private lawyer to fight the state auditor. That’s when Casey took the matter to Commonwealth Court, where it now rests.
Earlier this month, the state attorney general ruled that a contract the funds had made for the review with the outside firm Independent Fiduciary Services Inc. wasn’t valid. A state court is scheduled to take up the matter of who has audit authority later this year.
Meanwhile, some Pennsylvania educators have decided that enough is enough. The Pennsylvania Association of School Retirees, which represents about 40,000 retired Pennsylvania school employees, earlier this month lobbied lawmakers to intervene in the situation.
In a letter, the group asked whether anyone “really believes that the boards of the retirement systems, which collectively manage over $60 billion in funds contributed by the members and taxpayers of Pennsylvania, should be empowered to manage those assets free from scrutiny by any outside entity?”