Pennsylvania Pension Under Fire –

Pennsylvania Auditor General Robert Casey has asked the Pennsylvania Commonwealth Court to declare that his office has the authority to audit the Pennsylvania Public School Employees’ Retirement System (PSERS) and the Pennsylvania State Employees’ Retirement System (PennSERS). The move is the latest in a heated battle between the auditor general and the two funds – both private equity investors – over the proposed audit, with both sides trading accusations and claiming to be on the right side of the law.

Casey initially sought to conduct an audit in August over the retirement systems’ use of outside consultants and investment advisors that have cost more than $250 million and over the heavy losses suffered by both PSERS and PennSERS. The funds, which manage a combined $61 billion in assets, have lost approximately $20 billion over the last two years. The losses led to the PSERS board voting to raise its subsidy from individual school districts to make up for the losses. This increase may lead to higher property taxes in some school districts.

PSERS and PennSERS have usually hired outside auditors to conduct audits every year, and they jointly announced in November that they would hire their own auditors again. Casey replied with a request for documents with a deadline of Dec. 27.

After the two retirement systems did not comply, Casey issued subpoenas to both demanding they release requested documents by Jan. 9. PSERS and PennSERS refused and issued a statement Jan. 17 claiming that Casey lacked the authority and was using the audit request to pursue political objectives. The two retirement systems call the proposed audit “duplicative.”

“Retirement assets are being used to stop an audit,” says Casey. “That’s about as disturbing as it gets.” Casey went on to say that “continued obstruction” by both funds will erode the confidence of taxpayers and retirees. “The question I keep asking is: What are they trying to hide?'” he said. “Now I’m very suspicious.”

Most objectionable about the auditor general’s plans, according to PSERS and PennSERS, is that the auditor general’s office would hire an outside firm to conduct the audit and have the two funds pay all expenses. The auditor general maintains that his office does not have the expertise to conduct such a study on its own.

State Treasurer Barbara Hafer, in response to the subpoenas, said Casey is “asking us to sign a blank check – to agree to pay an unlimited amount of money, with the ultimate amount to be determined solely by him.” Hafer, who is the chairperson of PSERS and sits on the board of PennSERS, accuses Casey of using the audit to aid in his own future political ambitions. “Far from being an objective audit, his would be an audit with an objective: to get Bob Casey elected state treasurer.” Casey, the son of former Penn. Gov. Robert Casey, Sr., ran unsuccessfully for the Democratic nomination for governor in 2002.

PennSERS Chairman Nick Maiale said that both funds have offered to allow Casey to observe the process of selecting the independent auditor and grant him full access to that auditor’s final report and papers compiled in the audit process.

PSERS is an investor in Franklin Venture Capital, Spectrum Equity Investors, Heritage Partners, Madison Dearborn Partners and Landmark Partners. PennSERS’ portfolio includes New Enterprise Associates, Summit Partners, Blackstone Capital Partners, Lexington Partners, HarbourVest Partners and Apax Partners & Cie.