Pennsylvania Pension Panel Explores Debt-Cutting Plans

A study committee of Pennsylvania officials is trying to find ways to help plug the $70 billion in total debt between the Public School Employees Retirement System (PSERS) and the State Employees Retirement System (SERS).

Focusing on fee reductions and other steps, the Public Pension Management and Asset Investment Review Commission held its final hearing last week in Harrisburg, the state capital, to figure out how to get out of this dilemma, with the help of experts.

The pension funds could save up to $6.5 billion if they cut back on manager fees, which would clear the $1.5 billion minimum the committee requires for each, Marcel Staub, CEO of Novarca Group, an independent cost specialist manager for institutional investors, told the panel.

Plus, innovation can help, said Ashby Monk, research director of the Stanford Global Projects Center. The pension plans could utilize new technology to help bolster returns, he contended.

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The goal of the study commission, said Joe Torsella, the state’s treasurer and the commission’s vice chair, is to find out how to “do better for our beneficiaries, for our taxpayers, and for the Commonwealth as a whole.”

The public school fund’s executive director, Terry Sanchez, said it is continuing to provide “as much transparency as possible,” and publicly reports all investment and related expenses, including fees.

Its chief investment officer, Brian Lewis, said the organization is looking into and implementing several cost-reduction tactics. It is also examining its public and private assets internally.

The state employee plan’s executive director, Glen Grell, said it does not “waste system assets,” nor does it hide fees. Grossman also noted a savings plan involving renegotiating fees with managers—fees would get cut in exchange for profit-sharing on returns above an agreed benchmark. The strategy is aimed at saving $2.4 billion over 30 years.

“We are open to considering any fee savings recommendations,” said CIO, James Grossman Jr. “The investment professionals at PSERS are always looking to negotiate the fairest fee deal possible.” Grossman added that all fee negotiations are now formally documented.

The state employees’ pension took offense at the commission’s speculations that it was hiding fees, said Grell. He labeled it a “false allegation” that “creates sensational headlines, it is incorrect and irresponsible.”

Last month, in a previous hearing, the coalition discussed a report by Ludovic Phalippou, an Oxford finance professor, which found that the two pension funds had been underreporting one-third of fees paid to private equity firms over the past decade. Phalippou found about $3.8 billion in unaccounted fee money between the plans.

The study was conducted to show the risk factors in the plans’ private equity investments. The committee’s mission is to improve the funded statuses, which are 56.3% for the public school retirement plan and 59.4% for the state employees system.

Tags: Pennsylvania Public School Employees Retirement System (PSERS), Pension, PSERS, Public Pension Management and Asset Investment Review Commission

The Pensions Regulator in Britain has banned two pension fund trustees for investing in “exotic, high risk and suspected scam investments,” such as eucalyptus farms, Cape Verde hotel rooms, and parking spaces in Dubai and Glasgow.

TPR banned Stephen Alexander Ward and Anthony Salih, who were directors of Dorrixo Alliance (UK) Limited, which acted as trustee for the London Quantum pension scheme. The regulator’s Determinations Panel said both men lacked the competence and capability to be trustees, and in particular described Ward as reckless and lacking in integrity.

“Ward’s conduct was reckless in all the circumstances, and amounted to turning a blind eye to a significant issue and failing to ask obvious questions,” said the independent Determinations Panel in its ruling. “Given his 40 years of experience in the pensions industry… it is difficult to believe that Mr. Ward was unaware of the risks that his actions and failings posed to members, and the likelihood that they breached the requirements of pensions legislation.”

Both men were warned that they could be jailed if they ever act as pension trustees again.

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According to TPR, hundreds of people were approached by introducers being paid a commission to persuade pension holders to transfer their funds to the London Quantum pension for investment in “exotic sounding” propositions. More than 90 people took the bait and transferred over £6 million worth of savings to the pension.

It also said hundreds of thousands of pounds were then paid out to Dorrixo, to introducers, and to a business providing administration and marketing services, all the while the members believed their funds were being put into low- or medium-risk investments.

“Stephen Ward and Anthony Salih put millions of pounds of other people’s money at risk and have neither the knowledge nor the skills needed to run a pension scheme,” Nicola Parish, TPR’s executive director of frontline regulation, said in a release. “Trustees play a vital role as the first line of defense for pension schemes, but these two men allowed huge sums to be invested into high risk, exotic investments that bear all the hallmarks of being scams.”

TPR appointed Dalriada Trustees Limited as an independent trustee to the pension with exclusive powers.

“As this case shows, we will take action to replace trustees if we believe they are putting scheme funds at risk,” said Parish, “and will ban those who are not fit to perform such an important task—pursuing cases [all] the way through the courts if that is what it takes to get the right result.”

Tags: Dorrixo Alliance Limited, London Quantum, Pension, The Pensions Regulator