Audit intensifies call to cut fees at school employees’ pension fund

Pennsylvania Auditor General Eugene DePasquale discusses the results of his office's audit of the Public School Employees' Retirement System on May 25 in Harrisburg. - (Photo / Jennifer Wentz)

Few people are going to debate it over Memorial Day burgers this weekend, but the state of Pennsylvania’s public school employees’ retirement fund matters – and people should pay attention, Auditor General Eugene DePasquale said during a news conference Thursday.

DePasquale’s office released a 151-page report Thursday examining the Public School Employees’ Retirement System’s operations between July 1, 2013 and the end of this past March.

The audit found that the fund’s practices aligned with legal requirements and the practices of other retirement funds its size. Still, DePasquale recommended more than two dozen ways its handlers could reduce fees and improve accountability.

“Following these recommendations alone will not eliminate the unfunded liability in the retirement plans,” DePasquale said during a news conference Thursday. “But they will, in my belief, improve the systems’ efficiency.”

The area where the fund has the most room for improvement: fees paid to investment managers, DePasquale said.

State officials have hammered away on the issue of investment fees over the past several months, with Gov. Tom Wolf and treasurer Joe Torsella issuing a joint letter to PSERS and the State Employees’ Retirement System in April urging them to cut costs.

DePasquale found that PSERS paid more than $416 million in fees to investment managers in 2016, down from $441 million in 2015. That amount generally matches national norms, but DePasquale believes Pennsylvania could more aggressively negotiate fee cuts with its managers, leveraging its status as one of the country’s largest funds.

Auditors could not tell how much negotiating PSERS has done in the past because it does not document that information. While the law does not require it to do so, and many other public pension funds also fail to disclose that information, the report urged the fund to be more transparent in the future.

Other recommendations in the report include broadening PSERS’s ability to revoke pensions from employees who commit crimes and adding written policies to govern PSERS board members’ education and attendance at meetings.

Pennsylvania Department of the Auditor General

PSERS generally agreed with the report’s findings. 

“Overall it was a positive experience, and the recommendations from the audit team will help PSERS continue to improve and strengthen our procedures and policies,” PSERS executive director Glen Grell said in a news release.

Torsella, who sits on PSERS’s board, praised the audit’s recommendations to cut fees, saying Thursday that he plans to ask his fellow board members to consider reducing fees by 20 basis points over a three-year period at the board’s next meeting.

PSERS still faces a more than $42 billion gap between the amount of money it is bringing in and the amount it will eventually need to pay out to retired teachers and other school employees. While cutting fees will save some money, officials have noted a much more comprehensive reform is necessary if the state wants to put any significant dent in that problem.

“The pension challenge to the state is the least talked about and most critically important financial issue that needs to be dealt with appropriately if we’re going to get out of this continuing spiral of state budgets where there is an unfunded deficit,” DePasquale said. “This issue has to be fixed.”

View the full report

PSERS Audit Report by Jenni Wentz on Scribd

Jennifer Wentz
Jennifer Wentz covers Lancaster County, York County, financial services, taxation and legal services. Have a tip or question for her? Email her at jwentz@cpbj.com.

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