HARRISBURG – In December 2020, Pennsylvania’s largest pension fund adopted a figure for investment profits that its executives called rock solid.
“We have done due diligence”, said the director of investments of the PSERS fund to its board of directors.
The number was wrong. In April, the board disowned the figure, passing a new lower number that triggered an increase in pension payments for 100,000 public school employees. The botched math is now under review by the FBI and financial regulators.
But in a new affidavit, fund spokeswoman Evelyn Williams says the $ 73 billion plan launched a “Detailed examination” in the calculation from “Summer 2020”. She detailed months of investigation that involved three outside consultants to make sure the figure was accurate.
Yet the launch of that survey was not mentioned to the board when it voted in December at a public meeting.
Terry Mutchler – attorney for board member and state senator Katie Muth (D., Montgomery), inside critic for PSERS – said the fund’s statement was troubling.
“In this affidavit,” Mutchler said, “PSERS recognizes that they knew something was potentially wrong in the summer of 2020.” The key question, the lawyer said, was whether the board was aware when it voted in December 2020 to approve the calculation.
“Is PSERS saying they let a vote go when they knew there was a question?” “ on the calculation?
PSERS did not immediately respond Thursday when asked about the affidavit.
Williams’ statement turned out to have a lot of impact. This week, a hearing officer cited his affidavit to bar the public from seeing the fund’s communications with consultants about the botched calculation anytime after the summer of 2020.
The officer, attorney Erin Burlew, released her ruling on Monday on an appeal from The Inquirer in a case brought under Pennsylvania’s right to know law. In her opinion, she was okay with the pension system that it could keep material secrecy because the public records law exempts the disclosure of material involved in an investigation.
Since the fund launched such “Non-criminal investigation …” in the summer of 2020, she wrote, it could keep the documents secret from that point on – a period that includes the December meeting when the board approved the wrong figure and this spring when the calculation debate culminated with the board’s disavowal of the number.
In a partial criticism of the pension fund, the appeals officer ordered the plan to reveal communications from early 2020 through the summer of that year. We don’t know how much light this will shed.
PSERS – the public school employee retirement system – said nothing to explain the original miscalculation beyond acknowledging it. In an internal report obtained by The Inquirer and Spotlight PA, however, one of the three consultants appeared to bear the blame. In an April 2021 memo to PSERS, Aon Consulting attributed the incorrect result to nothing more than “Clerical errors in data entry” by its staff.
However, news outlets have reported that the problem may run deeper. In news reports, they revealed that the pension system first used unverified data in what turned out to be a flawed calculation. Additionally, ACA Compliance Group, the company hired to verify the calculations, noted that it sampled less than half of the time period under review and skipped a critical month where errors were made.
The plan began its investigation, Williams said in his Sept. 24 affidavit, at a time when the fund’s performance appeared poor enough to “potentially” trigger pension increases for teachers.
In fact, the number adopted in December was just enough of a benchmark required to spare teachers this penalty – for a few months until it was canceled.
In a subpoena last month, the United States Securities and Exchange Commission explicitly requested âAll documents and communications regarding the decision to use unaudited financial information to calculate the average rate of return for the PSERSâ.
The Inquirer filed the right-to-know application in May. PSERS opposed and also alerted the three consultants – Aon, ACA and Buck Global – that they could join the fund in its opposition.
AON and Buck did so, claiming any publication could reveal trade secrets. The investigator replied, and Burlew agreed, that any such information could be redacted.
In its rebuttal, PSERS cited only its own internal investigation, not FBI and SEC probes, to support secrecy. Burlew wrote that this meant that the PSERS could not rely on the existence of these probes to block the dissemination of information.
In its legal argument, The Inquirer pointed out that the PSERS board did not vote for its audit committee to review the error until March of this year. The first subpoena to appear before the federal grand jury also did not arrive until that month.
The newsroom also cited a 2014 state Supreme Court ruling involving the Associated Press as saying the PSERS could not restrict information. The ruling said the exemption from investigation could not be used to seal routine government documents.
The newspaper said math checking was an integral part of the fund’s operation and such activities should always remain public. Burlew disagreed.
In an interview, Philadelphia attorney Mutchler said that typically an internal investigation “does not automatically transform otherwise public records into records that are outside the table.”
Mutchler was the first head of the Pennsylvania Office of Open Records when it was established in 2008, as part of an extensive “sunshine” law.
Muth, Mutchler’s client, took the unusual step of suing the agency on which she sits on board, claiming that PSERS wrongly denied her information. Two colleagues on the 15-member board, state treasurer Stacy Garrity and former treasurer Joe Torsella, recently filed a legal case supporting her.
In interviews, other retirement experts condemned secrecy.
“Public pensions are subject to comprehensive public records laws”, but have become “Adept at evading the disclosure of things which should be public information”, said Edward Siedle, a former SEC attorney who now represents whistleblowers and pensioners in the pension system in several states.
In Kentucky, where the fees charged by Wall Street executives have become so controversial that state officials have sued companies to demand reimbursements, “The mere fact that an investigation is ongoing, opened, active or whatever is not a sufficient basis to deny” a request for public documents, said Amye Bensenhaver, a former public prosecutor specializing in open-case cases.
Certainly, Hearing Officer Burlew noted in his view that the PSERS, while under no obligation to do so, could voluntarily disclose the material. Agencies can do so, she wrote, on the grounds that the disclosure was “In the public interest” and “Build trust and confidence”.