Teachers sitting on the Pennsylvania’s educator pension board voiced their concerns Thursday with a reform proposed by the state’s Democratic treasurer and a Republican lawmaker.
The brief, polite disagreement over how to reform the transparency and approval travel costs at the Public School Employees Retirement System comes in response to undisclosed trip expenses at the fund, first revealed by the Capital-Star in December.
Some board members, such as Democratic state Treasurer Joe Torsella, a Democrat, have been vocal opponents of the board’s status quo and have said the costs show a need for reform.
During a board meeting Thursday, Torsella offered a policy change that would, among other things, require the pension fund to pay for all travel expenses incurred by board members and staffers.
“People who do business with the system and have a vested interest in our money shouldn’t be paying for travel,” Torsella said during the meeting.
And at the very least, Torsella added, the board and public should be aware of any such expenses.
Torsella, up for reelection this year, has been joined in his effort by Rep. Frank Ryan, a Lebanon County Republican. Both sit on the board’s audit committee, which asked for full accounting of travel expenses in March.
Instead, the committee received only a partial report last month which cited $160,000 in travel expenses, paid with pensioners’ dollars.
But more important is what is still missing — the amount spent by PSERS’ investment partners, such as hedge funds or private equity firms, to buy hotel rooms, meals and transportation for traveling staff. Such expenses are often baked into the contracts PSERS signs with firms.
For example, public documents reveal just $1,392 of expenses for seven cross -country trips to Los Angeles. The reported costs for all seven trips are less than PSERS’ own estimate for two trips alone.
The trips included at least one stay in a five-star hotel, paid for by a private equity firm that PSERS has invested billions into.
The hidden costs raised alarm bells for Torsella and Ryan, and they revealed a policy prescription last month.
Besides requiring the system to pay for all travel expenses, the policy would require tiered approval of all intrastate, interstate, and international travel, quarterly expense reports and a review of the last two years of expenses.
Reports on potential investments would include a disclosure about who paid for any travel needed to prepare the report.
But at the meeting, rank-and-file teachers raised concerns that Ryan and Torsella were rushing through the policy without looking at unintended consequences.
For example, teachers questioned if the workload of approving travel should fall to board members. They also asked if the policy could limit needed due diligence travel to check in on $63 billion in investments.
“We have to make sure there is a there there to stop something from happening,” said Jason Davis, a Pittsburgh-area social studies teacher.
“This isn’t about if travel is recommended or not,” retorted Ryan. “We want to make sure it is disclosed.”
Davis wasn’t alone. Two other teachers on the board, including board Chair Chris SantaMaria, a Montgomery County educator, raised concerns about the policy.
Another concern, raised by the pension fund itself, was that the policy would require the pension to double book travel expenses.
Some private equity firms bake the cost of traveling to annual meetings for large investors, such as PSERS, into fees in each investment contract.
Those additional “partnership costs”, which do not only pay for travel expenses, amounted to $46 million in 2019, according to a PSERS report.
Having PSERS pay for its own travel despite those contracts could mean that the pension ends up paying twice, PSERS Executive Director Glen Grell said during the meeting.
According to a review of 11 pension travel policies by the Pennsylvania Department of Banking and Securities, at least two pension funds, including neighboring Ohio, outright ban third party payment for any travel — such as PSERS’ travel to Los Angeles.
Washington only bans travel reimbursements from firms seeking to do business with its pension fund. Meanwhile other states, such as California or Wisconsin, allow for outside reimbursement only in certain circumstances or with reporting requirements.
Under the rules of the Pennsylvania Municipal Retirement System, which manages $2.6 billion for 14,000 pensions for numerous municipalities, counties and local authorities, staff cannot accept anything but meals from current investment partners.
Commenting on the review, Department of Banking and Securities policy analyst Alan Flannigan said that PSERS travel practices “would be prohibited in many other public pension systems.”
PSERS has repeatedly said that they have not violated Gov. Tom Wolf’s gift ban, which prevents state employees from accepting “a gift, gratuity, favor, entertainment, hospitality, loan or any other thing of monetary value” from most private individuals or organizations, outside of family and friends.
“I disagree with anyone’s characterization that PSERS’ travel policies and procedures are somehow inappropriate or out of line with most of their peers,” pension spokesperson Steve Esack said in an email. “In fact, PSERS policies appear to be stricter than some of the plans cited by Banking and Securities.”
After a half hour of back and forth, the committee decided to refer the matter to a separate board committee on internal rules. The board members agreed to adjust and pass the policy by the next regular board meeting in August.