Pennsylvania pension fund could sue its consultant for botching its earnings figure | Nation

Pennsylvania’s beleaguered pension fund for educators has hired another outside law firm – this time to consider suing the consultancy that admitted to botching a calculation of key benefits in an error that sparked an ongoing investigation from the FBI.

The $75 billion pension plan’s board has hired Philadelphia-based big firm Blank Rome to pursue a ‘potential litigation’ over consultant Aon’s admission that his ‘inadvertent clerical errors’ caused leads the fund to adopt a false and exaggerated figure for profits.

The plan – the public school employee pension system – had to correct that figure later, forcing 100,000 school employees to contribute more to the pension plan. Under the state’s “risk-sharing” law, the amount teachers contribute to the fund depends in part on their investment earnings.

PSERS had agreed to pay Chicago-based Aon $7.2 million for investment advice and performance metrics in contracts dating back nearly a decade – and the fund continues to employ the firm . But Aon’s contract also includes a promise to reimburse “all claims” that may arise from failure to meet its terms.

Aon had no comment. Early last year, the company said “human error” and data entry errors caused the “data corruption”. “Aon sincerely regrets the error,” the firm wrote to the pension plan.

PSERS wouldn’t give details about Blank Rome’s hiring. People familiar with the decision said the law firm would consider options for legal action, including a possible lawsuit against Aon.

After the pension system made the mistake public last spring, the U.S. Attorney’s Office in Philadelphia sent FBI agents with subpoenas to find out more about what was wrong. The Securities and Exchange Commission is also investigating the miscalculation, as well as possible gifts from Wall Street advisers to PSERS employees, and whether it influenced the pension contracts.

The embarrassing mistake has fueled dissent and tensions within the board. The fund’s two main executives announced their retirement last fall. No one has been charged with wrongdoing.

Even before Monday’s board vote to hire Blank Rome, the pension system had paid $4.5 million to at least seven other law firms and a financial consultant hired to handle the miscalculation and investigations. federal agencies that have grown to include the Securities and Exchange Commission. The largest single payment – $1.9 million so far – went to Morgan, Lewis & Bockius of Philadelphia to deal directly with federal investigators.

Due to the law tying profits to payments to teachers and other school employees, the profit figure was a source of great concern for the fund. The original calculation had mistakenly inflated PSERS revenues by $150 million – just enough, it seems, for the fund to avoid increasing payments to working educators. Then, when the figure was corrected, the levies increased for educators.

Another outside law firm, Womble Bond Dickinson, was hired to conduct a parallel investigation to the FBI investigation.

Aside from the typing error, the Womble Report revealed that the board adopted the wrong number at the key 2020 meeting where the former PSERS leadership chose not to answer questions. board members skeptical of performance numbers. Womble’s attorneys also suggested the board was pressured by managers to approve what later turned out to be an inaccurate figure.

In his response filed with the Womble Report, former PSERS executive director Glen Grell revealed that he unsuccessfully urged the board to fire Aon after the scandal broke in March 2021 over the ‘error. He wrote a press release – never published, but reprinted in the Womble document – heartbreaking to Aon, saying “our trust is now shattered because Aon has let this mistake go unnoticed for so long”.

The Womble report does not specify why Aon was kept on despite Grell’s insistence that he be fired. The report says Aon answered written questions but did not sit down for an interview.

Grell announced his retirement at the end of the year, along with James Grossman Jr., the fund’s chief investment officer.

Addressing another lingering issue, PSERS also on Monday hired a Philadelphia firm, Rittenhouse Appraisers, to appraise about 15 real estate parcels that fund executives acquired for the downtown Harrisburg agency between 2017 and 2019 for a secret plan for urban renewal.

The Inquirer later learned of a PSERS proposal to partner with Harrisburg University of Science and Technology on an office tower, but nothing ever came of it. The PSERS demolished the buildings on the lots, which remain empty. The results of those assessments will be made public, the board said in a resolution approving Rittenhouse’s hiring.

In total, the fund has spent around $10 million buying, demolishing and maintaining a mix of industrial buildings and parking lots near its offices. Womble, in his report, pointed out that many buildings were purchased without staff first obtaining appraisals.

Rittenhouse has appraised a wide range of commercial real estate. Its customers include the US Army Corps of Engineers and the Federal General Services Administration, owner Carlo Batts said.

Dolores W. Simon