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Pa. Teacher Retirement System Under Investigation — Here’s Why

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Beaver County Times (PA)

May 4—Pennsylvania’s Public School Employees’ Retirement System has been embroiled in controversy, and a miscalculation could have thousands of members in the system start to contribute more to their retirement funds in July.

Here’s an explanation of what happened and what it means:

PSERS has more than 500,000 members, about half of them teachers, and should not be confused with SERS, which is the State Employees’ Retirement System that has far fewer retirees.

Currently, PSERS is valued at about $64 billion.

A 15-member board oversees PSERS.

Board members include the state secretaries of banking and securities, and education; the treasurer; an appointee of the governor (currently vacant); five retired or working system members; two school board representatives; two state House members, one from each party; and two state Senate members, one from each party.

In late March, the PSERS board announced that it was investigating a consultant’s apparently incorrect risk-sharing calculation concerning the fund’s investment performance.

The Associated Press reported that the calculation, which was 6.38% growth over the nine-year period ending June 30, 2020, was higher than the 6.36% growth threshold, meaning about 100,000 system members who are currently working would not have to pay a higher contribution.

If the risk-sharing calculation were wrong and growth fell under the 6.36% threshold, then PSERS members who were hired after 2011 would have to contribute more.

On April 19, the PSERS board revealed that the growth rate was actually 6.34% and voted to raise the contribution rate for 94,000 system members on July 1.

Again, the move would only affect school workers hired after 2011.

According to the AP, most school employees would have their contributions increase by 0.5% of their salary while some will have to pay 0.75% more of their salary.

However, the AP reported at the time that state Sen. Pat Browne, R-Lehigh County, the Senate Appropriations Committee chairman, was the only PSERS board member to vote against raising the contribution rate, saying that state law does not allow it so the Legislature must first change the law.

“The current statute as written, without amendment, requires us to change the law before we’re able to recertify,” Browne said.

Taxpayers will be responsible to make up the difference if the law is not changed, and PSERS has refused to say how much money is involved.

The Philadelphia Inquirer has reported that PSERS has hired one law firm to investigate how the mistake occurred and another to determine what the correct growth figure should have been “and how it might affect taxpayer and teacher payments to PSERS.”

On April 20, PSERS announced that its audit and compliance committee authorized PSERS staff to pursue an agreement with Verus Investments to provide investment consulting services during the internal and external probes.

In a statement, audit committee chairman and state Rep. Frank Ryan, R-Lebanon County, said the contract would “provide additional advisory capability as we navigate additional work as a result of the special investigation that the Audit Committee is overseeing.”

Ryan also said that “no personnel changes have been made whatsoever at PSERS.”

If that wasn’t enough, PSERS has also been served with federal grand jury subpoenas related to a real estate probe out of the U.S. attorney’s office in Philadelphia.

Per reports from the Inquirer and PennLive.com, the FBI investigation is centered on the purchase of properties in Harrisburg for $13.5 million, including the former home of the Harrisburg Patriot-News newspaper, which has since been demolished.

PennLive.com said PSERS has not revealed any plans for the property and that it was purchased by a company for PSERS for $1.6 million in December 2017, about $1 million more than it was initially sold for just a few months earlier.

Also, the Inquirer reported that the FBI is investigating other property purchases, including parking lots in Harrisburg and one from the Pennsylvania Housing Finance Agency.

One source has told the Associated Press that the subpoenas also concern the miscalculation of the fund that has led to possible higher contribution rates for school employees.

Chris Lilienthal, a spokesman for the Pennsylvania State Education Association, the state’s largest teachers’ union, told the USA TODAY Network that the PSEA was “disappointed in the process that led to the calculation correction,” and PSERS must now comply with any state pension laws.

“PSERS must continue to conduct a full review of its operations to discover how this error occurred and ensure that it never happens again,” Lilienthal said.

“PSEA members contribute to their pension fund year in and year out, and PSERS needs to do everything possible to protect the retirement security they have earned and paid for.”

On Monday, PSERS announced that there would be a special board meeting held at 5:30 p.m. on Wednesday.

No agenda for the meeting was released.

J.D. Prose is a reporter for the USA TODAY Network’s Pennsylvania State Capital Bureau. He can be reached at jprose@gannett.com.

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