PA SERS Praised by Dept. of Auditor General After Year-Long Investigation

Policies lauded for governance, portfolio management.

Following news of its 6.5% return in 2016, the Pennsylvania State Employees’ Retirement System (SERS) continues to ride positive waves, as the Department of the Auditor General’s audit report found the fund’s policies “thorough and providing a strong foundation for good governance.” 

The year-long audit tasked SERS staff with 55 separate detailed requests from the audit team, in addition to participation in multiple meetings and a survey assigned to board members and designees.

According to comments in the report, SERS was praised for its draft Education Policy, suggesting it establishes a “solid foundation” to implement an education program. In July, the SERS board finalized the policy, which included provisions established in the newly enacted Act 2017-5 pension reform legislation.

The report also appreciated SERS’s reporting of its fund performance and the way it monitors its private investment managers. The audit also enjoyed SERS’ investing approach, reporting of investment expenses, its internal controls over investment operations, and the diversity of the portfolio.

“While SERS’ reporting of investment expenses surpasses some peer public pension systems, the system has taken efforts to reduce these expenses over the audit period,” the report said. “SERS’ strategic approach to investing, specifically the key decision of whether it is most prudent to actively or passively manage portfolios within its asset allocation policy, appears to be reasonable.” 

The audit also validated SERS’ pension forfeiture determinations in compliance with Act 140, which applies to all SERS members who commit certain crimes in relation to their employment.

Pennsylvania Treasurer Joe Torsella expressed his gratitude for the positive audit, most notably its notes on SERS’ $167 million payments in 2016 to high-priced Wall Street money managers for an investment strategy that underperformed.

“I thank Auditor General DePasquale for conducting a complete performance audit of now both of Pennsylvania’s largest pension boards,” said Torsella. “His report reflects my fundamental concern: SERS has historically paid a substantial amount in high Wall Street fees on investments that are underperforming. Like the Auditor General, I commend recent steps SERS has taken to reduce fees while urging the system to accelerate and intensify those efforts.”

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