HARRISBURG — The leaders of two public employee pension funds addressed the findings of separate internal governance reviews at a subcommittee meeting of the State House Committee on State Government.
Subcommittee members focused on reports written by Funston Advisory Services on the Public School Employees Retirement System (PSERS) and the Pennsylvania State Employees Retirement System (SERS) – two of three pension schemes for public employees, the third being a scheme for retired municipal employees.
State Representative Brett Miller, chairman of the subcommittee, noted that the two plans under review have a combined 357,000 active members, 373,000 retirees, and represent a combined total of $4.8 billion in pension payments from the state.
The latest SERS report, which followed an initial review by Funston in 2015, was a fiduciary and governance review of the nearly $40 billion plan.
“They had implemented virtually everything we recommended in 2016,” said Randy Miller, project manager at Funston. “There has been a huge improvement.”
Recommendations included working with the General Assembly to ensure that one or more directors on the board have professional investment experience. The report also recommends that SERS be given greater authority over staffing, compensation and budgeting, and increase the delegation of investment decision making to staff over time.
Joseph Torta, executive director of SERS, said it has become more difficult to develop employee expertise as pay grades have been reduced from 35 to 20 over the years, resulting in a “labour ‘transitional work’ in SERS and other Commonwealth agencies.
SERS has 267 positions and 53 are currently vacant.
“I don’t know if this is consistent with other Commonwealth agencies, but it is a significant impediment to providing services to our members and participants,” Torta said.
The PSERS, a $73 billion plan, is under investigation by the Justice Department after a miscalculation resulted in incorrect employee contribution rates. The rates have since been adjusted and according to the Associated Press, a consultant took responsibility for the miscalculation.
PSERS commissioned Funston to lead the review in 2019. Governance structure and bylaws were among eight areas the company looked at. It did not review asset and allocation trades or potentially combine trades with SERS.
The report identified a “lack of trust” among board members and pointed out that there is no strategic plan for the pension fund. The report contained 25 recommendations.
Terri Sanchez, acting executive director, said 10 of the recommendations have been adopted or are in the process of being developed, including four of the six governance reforms. While some recommendations could be changed, she said she expects all to be deliberate.
Sanchez and Chuck Serine, acting chief counsel, are temporarily fulfilling their duties. Those positions are to be filled permanently, followed by the hiring of a chief investment officer, according to Beverly Hudson, deputy executive director for administration.
“The goal is to have the new executive director nominees on the board before July,” Hudson said.
Sanchez later added that the PSERS should prioritize hiring a compliance manager, allowing the internal audit team to offload compliance work and focus on their audit work from base.
The PSERS fund performed well in fiscal 2021. Its total net assets increased by $13.5 billion, pushing the fund to a record high of $72.5 billion, according to an end-of-year report. year. This report came just as former chief executive Glen Grell and chief investment officer James Grossman retired.
Chris Santa Maria, a public school teacher and chairman of the PSERS board, which he says is an unpaid role, highlighted the fund’s performance. He said working with advice from the Funston report had helped “turn the page on a difficult year”.
“While we were investigated and simultaneously dealt with the unusual work challenges of a pandemic, not one, not one, benefit payments to over 230,000 members were lost. or even delayed,” Santa Maria said.
Miller, the state representative, pointed out that the report found that PSERS does not have a “coherent strategic plan. It was a pretty strong statement.
Sanchez urged the board to act as quickly as possible.
As for PSERS and SERS potentially joining operations, Santa Maria said it would be best accomplished in tandem with the state legislature.
“We’ve always kept an open mind and an open attitude about anything that could bring more efficiency to the way we do things,” he said.