Two Biggest Pennsylvania Public Pension Funds Underreported $3.8 Billion in PE Fees, Oxford Professor Says

Pennsylvania’s two largest public pension plans have underreported billions shelled out to private investors, according to an Oxford finance professor.

That revelation came from an inquiry by Oxford’s Dr. Ludovic Phalippou, who a group of state officials asked to study ways to shore up about $70 billion in total debt between the $57 billion Public School Employees Retirement System (PSERS) and the $29.7 billion State Employees Retirement System (SERS).

The Oxford teacher determined the funds have been underreporting one-third of fees paid to private equity firms over the past decade, to the tune of $3.8 billion.

State Treasurer Joe Torsella said the commission was struggling to obtain records regarding the private equity money. The PE firms and the pension plans have mostly refused to turn over the documents. The taskforce’s investigation is still ongoing.

One of the reasons for the study is to determine how risky the private equity investments are for the two plans.  These investments are more expensive than other assets and funding levels continue to decline. This had led state officials to wonder if the money could be put to better use elsewhere.

While the treasurer doesn’t necessarily want the two retirement plans to quit investing in private equity, he demands that transparency improve.

“Together with my colleagues at the commission, we will keep fighting to fulfill our statutory mandate to produce a roadmap for transparency and fee savings that puts our funds on a more sustainable path,” Torsella said. He’s hoping the authority can collaborate with the pension systems to fulfill its duties “so that all our beneficiaries can receive the benefits they have earned after a lifetime of hard work.”

State Rep. Mike Tobash, a Republican, agreed with the treasurer’s sentiments.  “Openness and transparency are the key ingredients to develop the best public policies to improve people’s lives.” He added that  “nothing else will be tolerated” in order to slay the debt.

Both retirement systems say they have been cooperating with documentation requests, as well as boosting the reporting of private equity manager payments.

The commission was created last year under pension reform legislation. Its mission is to review the two pension funds’ spending, strategies, and procedures against established benchmarks. The panel’s goal is to develop a plan to save at least $1.5 billion in costs for the retirement systems over 30 years.

The team has six months to finish its review. Gov. Tom Wolf and the legislature will receive its findings and recommendations.

The next hearing in October  aims to pinpoint which costs can be cut from the funds.