*Editor’s Note: This story was updated to accurately quote Joe Torsella.
After 90 minutes of sharp words, dueling amendments, and stark disagreements, the state teachers’ pension fund unanimously agreed to reform how it pays for, and reveals, travel expenses.
Exact details will be hammered out by pension staff, but the policy will require the chairman of Pennsylvania’s Public School Employees Retirement System, a $55 billion public pension fund, to approve all out-of-state travel that costs more than $2,000.
The policy was introduced and adopted in response to the Capital-Star’s reporting on unaccounted for travel expenses by pension fund employees.
In December 2019, the Capital-Star reported on seven trips by pension investment officers to Los Angeles, where the official stayed at a five-star hotel for a private equity firm’s annual meeting.
Overall, public records reveal just $1,392 in expenses from the trips. That’s less than the pension funds own cost estimate for just two of the cross-country trips.
These expenses escaped public scrutiny because, while paid for by pensioners’ dollars, the hotel stays and other expenses were booked by the private equity firm — a firm that PSERS has also invested billions of dollars into over the past decade.
In effect, argued Joe Torsella, a pension board member and the state’s elected Democratic treasurer, the new policy “says public pension funds should not be using investment managers as travel agents.”*
This practice of baking travel costs, often spent on upscale destinations, into investment contracts is common in private equity contracts. Some pensions do opt out of the lavish stays however, and opt to pay their own way.
The new policy would require the pension fund to pay its own way for any travel, mandate quarterly reports of travel expenses, and order an internal review of all travel expenses back to 2017.
“I don’t think anyone has been acting in anything other than good faith,” Torsella added. “I think everyone at PSERS has been following the rules that have been in place. What I’m saying is I think those rules ought to change, we are changing today. And what Wall Street’s been doing, not PSERS, is in my view outrageous.”
Torsella, with fellow pension board member Rep. Frank Ryan, R-Lebanon, championed the proposal throughout the year as an attempt to reign in and fully account for the funds’ travel, as part of a pursuit of better returns for the state’s underfunded pension system.
A review requested by Ryan, who chairs of the pensions audit committee, found a preliminary $160,000 in travel costs from 2019. But after a more thorough review that includes bookings by private investments firms, that price tag more than tripled to $630,000.
The pension fund has argued it abides by a policy similar to Gov. Tom Wolf’s executive gift ban, which prevents anyone outside of close friends or family from giving state employees anything of monetary value.
Officials’ travel meanwhile, which can take them anywhere from the Beverly Hills to Milan to Hong Kong, is needed to check in on investments and protect pensioners’ dollars.
The final vote on the new policy was unanimous, it came after an hour-and-a-half of debate and amendments between board members. Among the most vocal skeptics were the board’s active teachers, who pushed back on Torsella.
Sue Lemmo, an art teacher in Clearfield County, and former teachers’ union official, protested that Torsella’s whole argument was built on alleging non-existent corruption at the board.
“Underlying the policy proposal was an impression that because an investment firm bought ‘a nice hotel’ or “they take you to a nice restaurant to eat … that somehow influences your decision.”
“And, I’m not sure that I buy that,” Lemmo said.
One PSERS official backed her view. Darren Foreman, the pension’s director of private equity, described international work trips as “no joy ride,” low on sleep and free time, and high on jet lag and meetings.
“That’s really how it is when we go, internationally,” Foreman said. “Two days of travel, two days on the ground. You’re working from sunrise to past sunset.”
After Foreman’s remarks, state Banking and Industries Secretary Richard Vague, a venture capitalist, remarked: “I’m thinking perhaps we should be giving folks medals for going.”
Vague later acknowledged that the work travel can be “grueling,” and that he supported the new expenses policy “because it protects the institution.”
“Even when pension system employee conduct is impeccable, which we presume that PSERS is, having the funds pay for travel creates the appearance of conflict,” Vague said.
According to PSERS, private equity has been good for the fund. The pension reported a $1.3 billion return on private market investments in 2017. That’s while paying $537 million in fees.
The pension is also, like many other government agencies, facing treacherous fiscal waters amid the COVID-19 pandemic.
The pension safeguards the current and future retirement of more than 500,000 school employees.