Participant in Pennsylvania’s School System Plan Sues Investment Consultants

Teachers hired after 2011 are part of a variable benefit plan design, in which they have to pay more into the plan when returns miss certain targets, a news report says.

Investment consultants for the Pennsylvania Public School Employees’ Retirement System (PSERS) are facing a lawsuit alleging that poor advice has cost the plan billions and forced teachers to pay millions in extra pension contributions, the Philadelphia Inquirer reports.

According to the news report, under state law, teachers hired after 2011 have to pay more when returns miss certain targets—a plan design called a “variable benefit plan” that encourages risk sharing between the plan, its participants and taxpayers. Lawyers who filed the suit on behalf of one schoolteacher are asking the Philadelphia Common Pleas Court to accept the case as a class-action suit representing about 100,000 other school employees hired since 2011.

The suit names as defendants Aon Investments USA, Hamilton Lane Advisors Inc. and 812 Market, a company formed by PSERS to hold title to real estate it has bought near its offices in Harrisburg.

The suit cites an error Aon acknowledged in recent work it did in computing a figure for investment returns, the news report says. Citing “clerical mistakes at a data-entry level,” Aon said it had come up with an exaggerated figure for returns last year. The adoption of a lower figure by the PSERS Board in April led to an increase in pension payments required by teachers.

The complaint also says fund performance has been dragged down by high-fee, high-risk investments.

According to the Inquirer, starting next month, the affected teachers will have to contribute an average of $240 a year more to the plan. In total, the increase will drive up the teachers’ yearly payments by about $26 million.

A spokesperson for Hamilton Lane told the Inquirer it had yet to be served with the lawsuit, and Aon declined to comment.