The Pennsylvania Public School Employees’ Retirement System, the commonwealth’s largest pension fund, is exploring legal action stemming from a 2020 reporting error. At its most recent board meeting on November 15, the fund authorized law firm Blank Rome LLP to commence litigation in respect to the error.
The board also authorized staff to undertake an “emergency procurement” to find a new investment consultant, while encouraging potential new consultants to respond to its request for proposals.
The long-developing situation led both the pension fund’s executive director, Glen Grell, and CIO, Jim Grossman, to retire in November 2021 after a portion of the board attempted to force their termination earlier in the year.
The turmoil started In December 2020, when Aon, as the PSERS’ general investment consultant, told the board its nine-year performance figure was 6.38%, just above a 6.36% threshold that would trigger additional contributions.
After repeated inquiries to Aon about data inconsistencies were finally answered in February 2021, the fund’s staff informed the board there were errors in the data used to perform the calculation. A review of the data found that the actual nine-year performance fell short of the 6.36% target. This revision triggered the state’s shared-risk provision, which required and plan participants to pay more into the system.
The FBI , the U.S. Department of Justice and the Securities and Exchange Commission all investigated to determine whether kickbacks or bribes were involved in the misstatement of the pension performance. The Justice Department earlier this year closed its investigation.
In February, PSERS publicly released the report it commissioned from law firm Womble Bond Dickinson, which attributed the return errors to corrupted data entered on an internal Aon system.
Grell, the executive director at the time, wrote in response to the law firm’s report that, “In its March 5, 2021, letter, Aon admitted that its data had been corrupted by ‘an [Aon] analyst in uploading NAV and cashflow data from the BNY system into the PARis performance system [that] Aon uses.’ In other words, Aon failed to confirm that its own data—stored in a system that only Aon has access to—was correct before using that data to calculate the System’s nine-year performance in 2020.”
“It is important to note that PSERS Staff report that they relied upon Aon as the fund’s general investment consultant and had no reason to doubt Aon’s research and conclusion regarding these explanations,” the report stated.
The report found that an Aon executive called the fund’s CIO in February 2021 to divulge the error impacting the reported total fund performance. Aon followed this up by providing PSERS with data showing that the original data for Q2 and Q3 2015 had inaccurate cashflow measurements.
Aon this year sent PSERS two memos for distribution, both of which indicate its own culpability for the error. The memos attribute the incorrect data as “clerical mistakes at a data-entry level” by its staff.
The Womble Bond Dickinson report found no illegal activity, and nobody involved has been charged with any wrongdoing.
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Tags: Aon, consulting, DoJ, FBI, Glen Grell, Lawsuit, PARis, PSERS, regulation, SEC