On Friday the Pennsylvania Public School Employees’ Retirement System and the State Employees’ Retirement System rejected as “invalid” subpoenas for documents requested last week by Pennsylvania Auditor General Robert P. Casey Jr. (see PA Auditor General Subpoenas Public Pension Funds ). Later that afternoon, Casey said he plans to go to court this week to force the issue, according to Dow Jones.
The two funds, which have a combined $61 billion in assets, say they plan to hire their own independent auditors to conduct a review of their investment operations: “a truly independent, nationally recognized firm to perform a comprehensive investment fiduciary audit of our operations,” SERS Chairman Nick Maiale said in a statement.
The funds, like many public and private pension funds, have experienced sharp losses along with the declines in investment markets (see S&P: Pension Pressures May Push Public Funds ). While the Pennsylvania funds have grown over the long term, they’ve lost about $20 billion combined over the past two to two-and-a-half years.
The controversy, which has been brewing since last summer (see Pa. Auditor General Kicks Off Pension Probe ), took on a fresh impetus after the PSERS board voted last month to raise its subsidy from school districts, and news reports suggested that homeowners in some areas might have to pay higher taxes as a result.
Still, while fund officials say they have offered to cooperate with Casey in allowing him to observe the selection process, granting his office access to the work papers and final report from an outside audit, they maintain that Casey lacks both the legal authority and expertise to conduct a review of the funds’ operations.
According to the Pennsylvania funds, the auditor general “wants the funds to pay both for a consultant whom Casey would hire – because his own office lacks the expertise – and pay for any staff time of Auditor General employees that Casey might choose to charge to the project. He has not placed any cost ceiling or time limit on the audit.”
“We’ll see them in court,” Casey spokeswoman Karen Walsh told Dow Jones.
“Each of our board members has a fiduciary responsibility, and each of us takes that responsibility very seriously,” said State Treasurer Barbara Hafer, who chairs the PSERS board and serves on the SERS board.
Casey has accused the funds of “arrogantly” refusing to cooperate with audits he has tried to conduct since August related to the systems’ expenditure of more than $250 million a year on outside investment advisers and consultants (see Pa. Auditor General Kicks Off Pension Probe ). Casey contends the funds haven’t been subject to a truly independent audit in decades, an assertion the systems deny.
“Audit With an Objective”
“Far from being an objective audit, his would be an audit with an objective: To get Bob Casey elected State Treasurer. The fact that he intends to run for Treasurer has been widely reported and, should he win, he would become a member of both the PSERS and SERS boards,” said Hafer. “We can’t prevent him from attacking the pension funds as a campaign issue, but we’re not going to use our retirees’ money to pay him to do it.” Casey’s term expires in January 2005; he lost his bid for the Democratic Party’s gubernatorial nomination last year.
Barbara Hafer, who first took office as Pennsylvania’s Treasurer in January 1997, had herself previously served as the state’s Auditor General for eight years.