PA’s millions: Pensions split on private-prison protest

Pennsylvania’s two big state pension plans are split over a private-equity firm that prison-reform activists and labor-union leaders say is tainted by its association with a for-profit prison contractor, part of what they call the “prison-industrial complex.”

The Pennsylvania Public School Employees’ Retirement System (PSERS) voted in August to invest $300 million with Platinum Equity Capital Partners Fund V, run by Platinum Equity LLC and its founder, Detroit Pistons owner Tom Gores. Just two of the 15 trustees voted against it.

By contrast, last week, none of the trustees of the State Employees’ Retirement System (SERS), which pays pensions for state troopers, state university professors, judges, legislators, and other state government employees, would even recommend a vote on whether to make a $150 million investment in that same fund.

Why so different?

At the August PSERS meeting, state Treasurer Joe Torsella objected, as he often does, to betting hundreds of millions on a high-fee private-equity fund like Platinum. He says such funds — long a favored choice of the state’s pension managers — lock up capital for years, charge high fees, and can’t be counted on to do better than low-fee stock-market index funds like those set up by his late mentor, Vanguard Group founder John C. Bogle.

State Secretary of Education Pedro Rivera joined Torsella in voting against Platinum. He had heard objections raised at earlier SERS and PSERS meetings by national prison-reform activists that Platinum Equity two years ago invested $1.6 billion in Securus, a California for-profit company that charges inmates for phone calls in state and county prisons around the United States. The question was: Should PSERS — whose membership includes 256,000 active and 233,000 retired school employees — be collecting even a bit of their retirement checks from profits squeezed from prisoners’ calls home?

Staffers led by PSERS chief investment officer Jim Grossman made the case for Platinum and Securus, and noted that previous Platinum investments have made money. They easily won majority support in a vote that had been delayed from the spring. The PSERS board is chaired by Melva Vogler, a retired Pike County teacher who’s been on the board for 25 years.

On Sept. 23, it didn’t work that way with trustees of SERS, which manages benefits for about 239,000 public sector employees and retirees.

“I’ve been on this board for about 20 years, and I’ve never seen this amount of negative press on a firm,” SERS Chairman David Fillman, who is also the head of the AFSCME union group representing state employees, told Platinum partner Mark Barnhill and SERS’ own staffers when they recommended voting $150 million for Platinum Fund V.

Fillman cited articles about Securus including an op-ed column in The Inquirer by Nicole Hunt of Philadelphia’s school cafeteria workers’ union, a story in the New York Times, and notes on nonprofits’ websites suggesting Securus profits may be transitory as more prisons limit phone contracts. He also cited adverse stories (investors call it “headline risk”) about another Platinum investment, Transworld Systems, a student-loan company fined for illegal collection methods; and testimony from prison-reform advocacy group Worth Rises and liberal advocacy group PE Stakeholder.

To Fillman, Platinum’s controversies were starting to look like a pattern: “I’m concerned, going forward, what other entity out there is going to be messed up, too, that we don’t know about."

No trustee took up Fillman’s challenge to recommend the investment.

Platinum’s Barnhill, who had offered discount fees, thanked the board for its consideration, and left. SERS’ refusal, Worth Rises Executive Director Bianca Tylek told me, was a precedent-setting rejection by a big pension fund of a private equity fund due to its prison-contracting ties.

What’s so bad about Securus? Doesn’t someone have to run the phones?

Tylek and PE Stakeholder’s executive director, Jim Baker, had given the trustees data collected by the nonprofit Prison Policy Initiative group, which shows how much different prisons charge prisoners for calls. Among several U.S. companies that manage prison phones, Securus charges some of the highest fees, according to the survey.

Those charges vary. The highest in Pennsylvania: A one-minute call from the Union County jail will set inmates back $3.85, according to the survey. In five other Securus counties, it’s at least $2. A 15-minute call costs three to five times as much.

Securus also handles inmate calls at Pennsylvania’s much larger state prison system. “Under Securus, a 15-minute call cost approximately 92 cents,” including a three-cent FCC charge, says state corrections spokesperson Susan McNaughton. That’s a fraction of the county charges. A big volume discount.

I pointed out to Tylek that many of the readers who call me about prison stories don’t see why prisoners deserve any break. Why shouldn’t they pay what phone calls cost, and then some?

Why, the activists counter, should any fees for a public service go to a private, for-profit company?

Organized labor made the difference. SERS is headed by a union leader who takes complaints by his labor brothers and sisters seriously even when it means bucking his fund’s own staff and advisors. Fillman said he’d heard enough, and none of his fellow trustees saw Platinum, or Securus, as worth a fight.

At the school fund, trustees tend more to defer to the investment pros.