Key Takeaways
- • Pennsylvania's Public School Employees' Retirement System (PSERS), managing a roughly $70 billion fund, is divided internally over whether to keep committing billions to hedge fund start-ups, private-equity buyouts, and real estate rather than returning to traditional U.S. stocks and bonds.
- • Publisher coverage reports that PSERS alternative investments have produced poor results, forcing taxpayers and school employees to pay more toward pensions.
- • Investigations by the FBI and SEC into PSERS have raised legal costs, with reported legal bills reaching $4.5 million.
- • The unfunded liability across PSERS and the State Employees' Retirement System is cited at almost $60 billion.
Summary
The Pennsylvania pension plan for teachers is at odds with itself over how to invest its roughly $70 billion fund, according to the Philadelphia Inquirer. The central question for the deeply split board is whether to keep directing billions of dollars into hedge fund start-ups, private-equity takeovers and real estate investments, or to return to conventional U.S. stocks and bonds.
The debate unfolds alongside a federal investigation. The article notes an ongoing FBI probe and a botched calculation of the plan's profits, both of which complicate the board's deliberations. Publisher coverage has also reported that a federal probe is examining the fund's exaggerated investment returns and real estate spending, and that legal bills tied to FBI and SEC inquiries have cost the teachers' pension plan $4.5 million.
According to the publisher's reporting, poor results from the fund's alternative investments have pushed costs onto taxpayers and school employees. A PSERS policy analysis cited estimated annual investment losses of over $1 billion, along with administrative burdens, which school employers and taxpayers would have to cover. Publisher material also puts the unfunded liability across PSERS and the State Employees' Retirement System at almost $60 billion.
The Commonwealth has stated that since 2017 it has committed to paying the full actuarially required contribution needed to reduce the existing pension shortfall. The strategic question for PSERS is therefore less about whether contributions are being met and more about whether the allocation to alternatives is delivering returns that justify its cost and risk.
The debate unfolds alongside a federal investigation. The article notes an ongoing FBI probe and a botched calculation of the plan's profits, both of which complicate the board's deliberations. Publisher coverage has also reported that a federal probe is examining the fund's exaggerated investment returns and real estate spending, and that legal bills tied to FBI and SEC inquiries have cost the teachers' pension plan $4.5 million.
According to the publisher's reporting, poor results from the fund's alternative investments have pushed costs onto taxpayers and school employees. A PSERS policy analysis cited estimated annual investment losses of over $1 billion, along with administrative burdens, which school employers and taxpayers would have to cover. Publisher material also puts the unfunded liability across PSERS and the State Employees' Retirement System at almost $60 billion.
The Commonwealth has stated that since 2017 it has committed to paying the full actuarially required contribution needed to reduce the existing pension shortfall. The strategic question for PSERS is therefore less about whether contributions are being met and more about whether the allocation to alternatives is delivering returns that justify its cost and risk.
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