After months of controversy and amid ongoing federal investigations, Pennsylvania’s largest pension fund announced Thursday that its two top executives would quit their jobs and retire.
With little explanation and after a board meeting largely closed to the media, PSERS leaders revealed the upcoming retirements of executive director Glen R. Grell, 64, and chief investment officer James H. Grossman Jr., 54.
The board chose to accept the retirement of the fund’s top executives without disclosing anything to the public about their role in the missteps that have rocked the $73 billion fund over the past eight months. He also issued statements praising them.
The departure comes as the board faced a watershed moment in the scandal – the moment when it could finally tell the public what was wrong with PSERS, the public school employee retirement system. Two weeks ago, an outside law firm hired to review the fund said its investigation was nearing completion and would harm some of the fund’s staff.
A lawyer for the firm did not identify anyone who would be the subject of criticism and warned the board that it faces legal risks from upset staff if it airs allegations that damage their reputation. The PSERS board has not yet announced its intention to make the report public.
Following negotiations, Grell and Grossman will move into paid consulting roles in the coming weeks while retaining their same salaries, but both will have severed ties with the fund by May and will retire. This means they will be in line for lucrative government pensions. The PSERS will, however, continue to cover its legal costs related to the ongoing investigations.
Grossman has long been the highest-paid state government official, with his compensation reflecting his role in high finance. He earns $485,000 a year, more than double the governor’s salary. His annual pension at age 60 would be about $170,000, less if he started taking it earlier.
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The executives’ tenure was tainted by the fund’s admission in March that it had mistakenly adopted a false and inflated figure for investment performance in December, an acknowledgment that immediately sparked an ongoing federal criminal investigation as well as a civil investigation by the United States Securities and Exchange. Committee.
The 15-member volunteer board adopted a new lower figure for the fund’s profits in April, an embarrassing reversal that forced it to increase pension payouts for more than 100,000 teachers and other school workers. school staff. This was prompted by a state law that required teachers to share in the pain when plan performance fell short.
The fund rebounded over the past year along with the global economy, posting a record 25% return, a massive jump from the nearly flat 1.1% return the previous year.
Still, the plan’s performance trailed more than a dozen other public funds and was well below the 38% rise in the S&P 500 stock index.
The PSERS is one of the 25 largest public pension funds in the country. Each year, it sends $6 billion in retirement checks to 250,000 former school employees. In the last fiscal year, it was supported by $5 billion in taxpayer payments, $1.1 billion from school workers and a record $12 billion in investment profits.
Despite ever-increasing state aid, the plan has a $40 billion shortfall to fund existing commitments. Retirees have not seen their benefits increase for almost 20 years.
The deal that led to Thursday’s announcement was reportedly brokered by state treasurer Stacy Garrity, who has joined other dissidents on the board since being elected last year. Significantly, according to sources, Garrity and other board members rejected suggestions from attorneys for Grell and Grossman that the men would receive severance packages. The pair also agreed not to sue the fund, the sources said.
State Sen. Katie Muth (D., Montgomery), perhaps the most vocal critic of Grell and Grossman’s board, called their exits “a step forward,” but blamed the board for administration for not having so far made public the internal report which would examine their direction.
Without public publication, Muth said, “PSERS continues its bad habits of not being transparent.”
Charles Elson, a corporate governance expert at the University of Delaware, saw the fund’s action as a classic “negotiated departure.”
Elson said such deals offer some dignity to outgoing executives while sparing a company an ugly legal war with them that could be “extremely costly, time-consuming and detrimental to business operations.”
The sloppy calculation debacle has been accompanied by a growing schism within the board of directors in which dissidents, including current and former Pennsylvania treasurers, have lambasted the investment strategy pursued by Grossman. Critics said his recommendations were too expensive, too illiquid, too opaque, and too unprofitable.
In June, the dissident bloc on the board tried and failed in an initial effort to oust Grell and Grossman, mustering six votes to fire them, two less than a majority. In a sign of the pair’s waning influence, however, the full board rejected the executives’ investment strategies in subsequent votes.
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Board critics also challenged and ultimately limited spending on luxury travel by Grossman staff, who flew around the world to verify fund investments. In an April article, The Inquirer highlighted a series of ultra-expensive airfares and hotel stays by staff. The trips were booked by investment companies that did business with the fund, on the understanding that the PSERS would reimburse them.
Among the battery of legal and financial companies hired by the PSERS to deal with the scandal, the fund has hired Womble Bond Dickinson, a large company with offices in the United States and the United Kingdom, to carry out a parallel investigation into the cases. under the control of the FBI.
It was Womble’s point person on the investigation, Claire J. Rauscher, who warned the board to exercise caution in releasing the results of its internal investigation. Transparency, she warned, may not be “the right answer”.
But Democratic Gov. Tom Wolf, who has three board appointees, has come out on the side of disclosure.
“Making the results of the survey public increases transparency and improves the confidence of its retirees and current members,” Wolf said Thursday, reiterating a stance he first took a day earlier.
In an interview, Ted Siedle, a former SEC attorney who now represents dissident pension plan investors in Illinois and Ohio, also called on the board to release the results of all investigations.
“It’s very significant when two senior officials decide to leave amid investigations,” Siedle said. “It’s an exceptional situation and the fact that they are retiring certainly suggests that there are more problems here.”
Even after the departures, the board of directors remains suspended on everything to be revealed to the public from the internal report. Rauscher pointed out that a key Pennsylvania court precedent gives those identified in the investigations the right to challenge the findings.
Since news of the federal investigation broke, the PSERS has said virtually nothing about it. Federal subpoenas, copies of which were obtained by The Inquirer and Spotlight PA, showed prosecutors exploring recanted reckoning and, in a seemingly unrelated matter, the fund’s purchase of industrial buildings and parking lots near from its headquarters in the State Capitol.
In June, the fund admitted that Grossman and other members of its investment team were listed on the financial document as being paid by both the pension plan and the company managing the Harrisburg real estate. The plan indicated that this was another error and that the forms would be changed.
As for the botched calculation, the board passed an inflated figure in December last year that was barely above the figure it needed to spare teachers an increase in their pension payments. It then adopted a new lower figure which triggered a higher levy.
Although the board did not explain how the miscalculation occurred, an outside consulting firm appears to have taken the blame in internal documents obtained by The Inquirer and Spotlight Pa., citing an error of writing.
That said, the wrong number was adopted after dissident board members, including then-state treasurer Joseph Torsella, raised concerns that Grell was using numbers that weren’t. audited, breaking with the usual procedure, to obtain returns on investment.
At the time, board leaders dismissed Torsella’s warnings.
“We did our due diligence,” Grossman said in December. “We covered it. I don’t care.