April 6 – The Public School Employees’ Retirement System (PSERS) posted on their website late Tuesday night that they would be hiring a law firm to assist them with a federal investigation that has subpoenaed records from the organization.
PSERS includes all teachers, staff people and administrators – everyone in the state who worked for a school system – and it’s a $64 billion pension fund.
It’s the largest one in Pennsylvania and one of the largest in America.
So why the federal probe?
It’s not entirely clear exactly what the federal investigation is looking for, but it was recently announced that the actuary for PSERS did an analysis on their rate of return and it turns out the report may have been inaccurate.
Their rate of return was 6.38%, which was just two basis points above the statutory threshold they need to establish so that employees don’t have to contribute more into the system.
But the number may not have been that high in which case the employees, in theory would have to make more contributions into the system because it didn’t meet its benchmark.
In laymen’s terms, it could mean retired public school employees may owe money.
Attorney Clint Barkdoll, Pat Ryan and Michele Jansen discussed PSERS on First News this morning.
“We don’t know what this federal investigation is about,” Barkdoll noted. “It may have nothing to do with that rate of return issue, but the timing of it seems awfully coincidental. If they’re under the microscope of federal investigators, this could be a major issue.”
Ryan added, “If they made that mistake and have to go back to all the folks to contribute, I don’t even want to hear, ‘You made the mistake we can’t be held responsible for it, you’re going to have to fund it yourself.’ Can you already hear that a million miles away?”
Barkdoll agreed, “You can see the train coming a million miles away. You can imagine the teacher’s union saying, ‘We’re not going to make retroactive contributions because this was your mistake, you’re going to have to fix this,’ which in code may mean that we, as tax payers, would have to make the contributions to it.”
With a federal investigation, questions arise as to whether there could be something particularly nefarious at work here, either in the way they’re calculating their rates or something else entirely.
Ryan continued, “We have to make retroactive payments when they don’t get the contracts done properly but they’re not going to do any kind of retroactive responsible thing. Oh somebody made a mistake? You’re on the hook for it, not the tax payers.”
Barkdoll pointed out, “The other thing that’s really galling about this…We’ve had the longest bull market run in history and when you look at the rate of return of PSERS, it’s way below any benchmark that you can imagine tied to the markets and that has really damaged the solvency of the fund.”
Jansen added, “The whole reason for that law was to put pressure on them to do better, to be held accountable and then they go and fudge the numbers? Because if you had to get all the teachers to contribute more, boy you’d be hearing about it. How nice you just fudge the numbers and there’s no pressure and we just keep on having the party we’re having.”