PA State Employees’ board tells staff to report travel expenses, carried interest payments

Pennsylvania State Employees’ Retirement System‘s board directed staff to report more information on its investment programs, the latest development in a years-long push for more transparency from the state’s two pension systems.

PA State Employees will publish an annual report “disclosing all travel or other expenses.” This will include expenses incurred by staff as well as those paid for by external managers, including private equity firms.

This resembles a travel policy passed in August by its sister system, Pennsylvania Public School Employees’ Retirement System, as Buyouts reported.

However, PA Schools will report travel-related expenses quarterly, while PA State Employees will report them only once a year. Also, PA State Employees’ directive is not an official policy but rather a board direction, according to spokesperson Thomas Derr.

Both boards’ actions came after local media reported Platinum Equity had directly booked some travel for PA Schools’ pension staff. While the money to pay for it was taken out of the system’s LP contributions, the firm’s role left no public record of how much the arrangements cost.

PA State Employees also told staff to provide an annual report on investment expenses, including the carried interest on “non-traditional investments.” Private equity firms typically charge investors 20 percent carried interest. PA Schools has already started reporting its carried interest.

The board first told staff to work toward this in mid-2019, according to sister title Private Equity International. 

Both directives were passed unanimously by the PA State Employees’ board at its September 30 meeting. Pennsylvania treasurer Joe Torsella, who sits on both the PA Schools and PA State Employees boards, praised the latter for “taking a huge step forward.”

“Every dollar that goes to Wall Street is a dollar that does not go to current and future retirees in our pension system,” he said in a statement Thursday. “We need to be honest and transparent with the public about what is being spent, how decisions are being made, and where those dollars are going when the collective futures of our beneficiaries are on the line.”

These measures are the latest development in an ongoing quest for more transparency from both pensions. In 2018, Torsella sat on a commission that examined the pensions’ investment practices.

The commission’s report said state law allowed both systems to “broadly shield” information that might have a detrimental impact on an investment.

In particular, the report said PA State Employees “has adopted a very aggressive interpretation of the statutory provisions to support its refusal of information requests from the commission as well as members of its own board.”

Additionally, the report pointed out that while the schools pension is required to provide access to information at the public’s request under a state transparency law, the state employees’ pension is not.

Last year, Republican state representative Brett Miller introduced a bill that would have required both pensions to make all investment information public, including “proposed fee terms, prospectuses, staff and consultant investment memoranda, subscription agreements, investment management agreements, contracts, side letters and annual investor reports of alternative investment vehicles,” as reported by PEI.

The bill was amended to take out that requirement, though, but appears to still be working its way through the legislature.

Both pensions are underfunded. As of June 30, 2019, PA Schools’ funded level was 58.1 percent. As of December 31, 2019, PA State Employees’ funded level was 56.5 percent.

Action Items: read the 2018 Pennsylvania commission on pension management report here. Read the summary for the September 30 PA State Employees meeting here.