Battle Over Audit Continues

The Pennsylvania Public School Employees’ Retirement System (PSERS) and State Employees’ Retirement System (SERS) lost round one in the political and legal slugfest unfolding in Harrisburg, Penn. The pension funds lost a preliminary hearing that would have blocked a lawsuit filed by the Pennsylvania Auditor General.

State Auditor General Robert Casey Jr. is suing the pension funds over the question of his office’s authority to conduct a performance audit of the two retirement systems. The pension funds contend that Casey lacks the authority to conduct such an audit and that the audit would be costly to the taxpayers. But in late November, the Pennsylvania Commonwealth Court turned down the pension funds’ attempt to have the suit thrown out of court.

However, the one bright spot for the funds is that the court rejected Casey’s assertion of monetary damages against pension board members. Nonetheless, the lawsuit, which will determine if the auditor general’s office may conduct a special performance audit, will proceed. No court date has been set.

Casey initially sought to conduct an audit last August over the retirement systems’ use of 150 outside consultants and investment advisors. The tally for those services adds up to more than $250 million. The overseers of the funds – SERS chairman Nick Maiale and State Treasurer Barbara Hafer, who is chair of PSERS and sits on the SERS board – maintain that the auditor general lacks the authority to conduct such an audit and have accused Casey of using the audit request to pursue political objectives.

It is widely believed Casey will run for Hafer’s state treasurer seat next year. Both Casey and Hafer will be termed out of their current positions next year; Hafer has not indicated what she will do next.

PSERS manages approximately $40 billion and invests in Adams Street Partners, Spectrum Equity Investors, TA Associates, Madison Dearborn Partners and Landmark Partners. SERS manages approximately $22.1 billion and its portfolio includes Apax Partners, New Enterprise Associates, Summit Partners, Blackstone Capital Partners, Lexington Partners and HarbourVest Partners.

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