Administration September 6, 2004

PA Funds Beg Appeals Court to Stop Auditor General Exams

June 9, 2004 (PLANSPONSOR.com) - Pennsylvania's two largest retirement funds have turned to the state's appeals court to prevent the state's auditor general from examining the retirement systems' investment practices.
Reported by

Attorney Edward Mannino, who represents the Public School Employees’ Retirement System (PSERS) and the State Employees’ Retirement System (SERS), told Commonwealth Court judges that Auditor General Robert Casey’s only interest in auditing the funds’ investment is to add fodder to his political agenda.   Rather, Mannino said Casey should have an independent, outside auditor examine the performance of the two boards – one who might have more expertise in evaluating pension funds, according to an Associated Press report.

Together, the two funds manage more than $67 billion in assets for approximately 580,000 government workers and retirees.

Get more!  Sign up for PLANSPONSOR newsletters.

Mannino’s argument is the latest step in the ongoing battle between the funds and Casey.   The funds argue Casey does not have the authority to conduct the audits while Casey contends he has both constitutional and statutory authority for the audits.   Attempting to enforce his authority, Casey has said he is interested in scrutinizing how the boards’ overseeing the two huge funds select and monitor the teams of private-sector advisers who help direct where the systems invest their money.   The funds have refused to provide Casey with any information.

Yet this has not deterred Casey, who in January asked the courts to force PSERS and SERS to “consent to and cooperate with” the Auditor General’s audits and to turn over the documents Casey has demanded.   This came after Casey issued subpoenas to PSERS Chair State Treasurer Barbara Hafer and SERS Chair Nicholas Maiale when they refused to provide the Auditor General with crucial documents regarding the Funds’ investment operations (See PA. Auditor General Subpoenas Public Pension Funds ).

Predictably, the ongoing battle has put DemocratCasey at odds with state Treasurer Barbara Hafer , a Republican.   Casey is running against Republican Jean Craige Pepper to replace Hafer as treasurer when her term ends in January and it is those political interest that Mannino says have taken over in this case.

Judge Dan Pellegrini met that argument with some skepticism.   “Why are you opposing this so vigorously?” Pellegrini asked, noting that many of the documents Casey had requested from the boards were public records. “He has the right, as the auditor general, to do a performance audit and say whether you’re doing a good job or a bad job.”

In fact, as of June 30, 2003, PSERS has 44.2% of its assets in domestic stocks, 17.8% in international stocks, 20.8% in domestic and international fixed income investments, 8.9% in alternative investments, 6.7% in real estate, and 1.6% in cash and cash equivalents.

No indication was given by theCommonwealth Court when it would rule on the case.

Administration September 5, 2004

No End in Sight For PA Fund Audit Battles

May 21, 2003 (PLANSPONSOR.com) - The bitter cat fight over who should investigate why two state of Pennsylvania public pension funds lost about $20 billion in 2002 continues with no apparent end in sight.
Reported by

The battle is being waged while public pension officials around the country struggle to cope with billions of dollars lost in the bear market, according to a Dow Jones report. It has been complete with rebuffed subpoenas, a court challenge, political posturing, intervention by the state attorney general, and pleas to the Pennsylvania legislature by retired teachers.

“In my memory, there’s never been another situation where funds have this type of disagreement and have made it a major issue,” Glenda Chambers, executive director of the National Association of State Retirement Administrators, told Dow Jones.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

The funds are the Public School Employees’ Retirement System and the State Employees’ Retirement System, now worth a total of about $60 billion. Though the state auditor reviews their financial statements annually, they haven’t undergone a comprehensive review for 25 years, according to State Auditor General Robert Casey Jr.

Casey, a Democrat, says he wants to take a close look at how the pensions are managed, and scrutinize the 150 outside firms that are paid a total of $250 million to manage the funds’ investments. He is interested in how the funds select money managers and how the managers are monitored.

“We want to know did you have procedure for selecting them,” Casey told Dow Jones in an interview. “Even if you did follow the correct procedure, did you monitor them when the fund started suffering terrible losses, or did you just keep paying them and let them do what they wanted?”

Opposing Casey is State Treasurer Barbara Hafer, who wants to hire an outside auditor for the performance review. Hafer, a Republican who formerly held the state auditor general post, also sits on the board of both pension funds.

The fight flared up last November, after the funds and the state auditor held negotiations about a possible performance review. The treasurer said she wanted an outside firm to do the audit, and Casey responded by issuing subpoenas for documents. The funds failed to comply and hired a private lawyer to fight the state auditor. That’s when Casey took the matter to Commonwealth Court, where it now rests.

Earlier this month, the state attorney general ruled that a contract the funds had made for the review with the outside firm Independent Fiduciary Services Inc. wasn’t valid. A state court is scheduled to take up the matter of who has audit authority later this year.

Meanwhile, some Pennsylvania educators have decided that enough is enough. The Pennsylvania Association of School Retirees, which represents about 40,000 retired Pennsylvania school employees, earlier this month lobbied lawmakers to intervene in the situation.

In a letter, the group asked whether anyone “really believes that the boards of the retirement systems, which collectively manage over $60 billion in funds contributed by the members and taxpayers of Pennsylvania, should be empowered to manage those assets free from scrutiny by any outside entity?”

«