PSERS report released: Key consultant refused to cooperate with probe into Pa.’s $73 billion school pension, sources say

The mammoth pension fund made the report public after 11 p.m. Monday, posting it on website, following a marathon day of meetings behind behind closed doors in which the board met for about 15 hours, in two sessions to hear from the law firm that carried out the investigation and to debate its contents -- and how much to make public.

At the end of it all, the panel met briefly in public, in a meeting streaming this on the web, as a succession of board members congratulated themselves on how they had handled the matter before voting unanimously to release the report immediately.

“This is the kind of transparency that will give the public confidence in our actions,” said State Treasurer Stacy Garrity.

State Sen. Katie Muth (D., Montgomery), the most outspoken critic of the fund’s management over the last year, was less upbeat. She noted that the public report had been redacted, saying there might be disagreement over how transparent the fund really had been.

Before the weary board members called it a day, several promised to use the investigation as a guide for unspecified reforms.

Terrril S. Sanchez, the retirement plan’s newly appointed interim executive director, presided over the public session. She took charge of the agency recently after its veteran chief, Glen Grell, and its investment czar, James M. Grossman, suddenly announced their retirements in November. Dissidents on the board had been pushing for a management shakeup.

A $484,000 probe of Pennsylvania’s biggest pension fund by a law firm hired by the retirement plan was undermined by the refusal of a key consultant to cooperate, people familiar with the inquiry said Monday.

Aon Consulting, a Chicago firm that played a crucial role in what turned out to be a botched calculation by PSERS fund officials, would not assist the law firm in its attempt to conduct a parallel investigation into issues that have also been under federal criminal investigation for months, the sources said.

Lawyers with Womble Bond Dickinson, the firm hired by the PSERS board in March to conduct an internal investigation and compile a report, spent more than eight hours Monday briefing the board on its findings, cautioning that Aon’s refusal had denied investigators a big piece of the puzzle. All but one of the 15 fund board members attended the session, either in person or remotely.

By 10:45 p.m., the board was still meeting behind closed doors and had not released Womble’s report.

PSERS — the $73 billion Public School Employees’ Retirement System — hired Womble in March as it learned that federal prosecutors and the FBI had subpoenaed information about the board’s adoption of a false, unduly high calculation for the fund’s investment profits. Womble, like the federal investigators, had also examined the fund’s $5 million appropriation to buy real estate near its offices and looked into suggestions that PSERS staff improperly accepted gifts from vendors.

In her presentation to the board, made with hundreds of graphics, Womble lawyer Claire Rauscher told the panel that, unlike federal prosecutors, her firm had no subpoena power and thus could not force Aon to cooperate.

The botched calculation was no academic error. Under state law, how much working teachers and taxpayers pay into the retirement system hinges on investment returns. While PSERS later fixed the error, its adoption of new, lower figures forced 100,000 working teachers and other school staff to put more of their pay into the system.

While PSERS has kept silent for months about all the matters under investigation, The Inquirer and Spotlight PA obtained internal documents last year in which Aon seemed to take much of the blame for the calculation error, a math exercise it carried out with PSERS staff as part of its $750,000 contract with the pension fund.

In an apologetic letter to PSERS, Steve Voss, head of Aon Investments for North America, said investment-performance data had been corrupted by “inadvertent clerical mistakes at a data-entry level.”

Other leaked documents suggested that the fund had erred by using unaudited figures in its initial calculation of performance profits.

On Monday, a spokesperson for Aon said the firm would have no comment on the Womble report, regardless of what it said.

For three months, the board members of PSERS have nervously and gingerly debated when to hear the potentially explosive report, repeatedly pushing back the date to do so.

» READ MORE: Board members of Pa.’s largest pension fund are asked to sign secrecy oaths

To keep the report secret, PSERS asked board members to sign a highly detailed, four-page non-disclosure agreement that forbids the release of anything from the review to unauthorized people or “any member of the media.” The signers must agree that their release of information would cause “irreparable harm” to the board.

Several board members have lambasted the NDA and said they refused to sign it. Gov. Tom Wolf and other political leaders have called for the Womble report to be made public. After several days of debate over the NDA, the pension fund clarified that members would not be required to sign it. It was not known Monday how many board members did so.

» READ MORE: State lawmakers mull pension reforms as PSERS remains under scrutiny

At least three of the volunteer board’s 15 members — Nathan Mains, chief executive of the state’s School Boards Association, state Treasurer Stacy Garrity, and state Sen. Katie Muth (D., Montgomery) — said publicly they would not sign the NDA.

“It is unfortunate,” Mains wrote his board colleagues over the weekend, “that actions by a few have overly-complicated a process that should have been simple — conduct a thorough investigation, present the findings to the full board and permit the public to understand what has occurred through a transparent release of the report.

“I urge my fellow trustees to act unanimously to direct that the findings of the internal investigation be made available to the public as comprehensively and quickly as is possible,” Mains added. “The annuitants and the public are entitled to nothing less than immediate and transparent disclosure following the Womble briefing.”

PSERS hired Womble in March to review “the circumstances that preceded and followed” the “misstatement of investment performance” in a key vote in December 2020. The board wrongly said that the agency’s return was just above a target that would have forced 100,000 working staff hired in the last decade to pay 8% of their paychecks to finance the system, up from 7.5%.

In April, that’s what happened when the board admitted the figure was wrong. It adopted a new, lower number that forced an increase in payments by working teachers and their colleagues.