PSERS Investigation Reveals No Wrongdoing. Instead, It Shows How a Calculation Error Can Turn Into a Pension Headache.

“A series of unfortunate oversights and a lack of transparency from a key consultant” had a domino effect for the pension fund, a law firm investigation revealed.

The Pennsylvania State Capitol building (Rachel Wisniewski/Bloomberg)

The Pennsylvania State Capitol building

(Rachel Wisniewski/Bloomberg)

A months-long internal investigation into a reporting error at the Pennsylvania Public School Employees Retirement System has revealed no evidence of wrongdoing, the PSERS board said Tuesday.

The results come almost a year after the pension fund launched the investigation into discrepancies in its investment performance figures. PSERS spent much of 2021 dealing with the fallout of this error, with the board holding numerous closed meetings and attempting to replace leadership with an outsourced chief investment officer firm. Eventually, chief investment officer Jim Grossman and executive director Glen Grell retired.

But, according to Womble Bond Dickinson, the law firm that completed the investigation, there was no evidence of foul play at the retirement system.

“We found no evidence of any kickbacks or any illegal payments,” the report on the investigation said. “We found no evidence of theft. We found no evidence of self-dealing. We found no evidence of false statements or misleading statements in financial transactions.”

Instead, the investigation revealed “a series of unfortunate oversights and a lack of transparency from a key consultant” — Aon — that led to a miscalculation that had a domino effect for the pension fund.

“We’re happy that Womble Bond got to the right answer, although we demonstrated to them months ago that there was no wrongdoing,” Matt Haverstick, Grossman’s attorney, said via email. A spokesperson for Aon declined to comment.


As a part of the investigation, Womble interviewed more than 30 people, including PSERS staff, trustees, designees, and third parties, in addition to sifting through more than 1.5 million documents. The investigation tackled two separate issues: PSERS’s property acquisitions in Harrisburg and the risk share calculation.

According to the report, in July 2020, PSERS asked its actuarial consultant, Buck, and its investment consultant Aon, to each calculate the fund performance. These numbers are important: PSERS uses its annual returns as part of a calculation that determines whether it needs to increase the contribution rate for its constituents. But the two consultants came up with different results.

What followed was a staff inquiry into Aon’s reporting practices. The team found that quarterly reports from 2014 through 2017 that showed adjustments in valuations. One of the adjustments was a 37-basis point change to a quarterly valuation in 2015.

PSERS’s investment policy shows that these quarterly reports are considered “official and final,” but that there is an approval process should revisions be necessary. According to Womble, Grossman said these changes “should be rare.”

In the fall of 2020, PSERS staff hired an outside consultant, ACA Group, to independently review performance. ACA was unable to verify two months of Aon’s reported returns. ACA’s results were reported at a December board meeting.

At that meeting, PSERS’s board was slated to vote on whether to increase member contributions. The vote hinged on whether a risk calculation, which factors in investment returns, met a specific hurdle rate.

Emails between Grossman and Aon show that there was a discrepancy in calculations, given that they were using two different sources of data. Had the team used previously-published annual report data, PSERS would have had to increase member contributions. They decided not to share this information during the meeting, where the board decided to keep member contributions at the same level they were.

However, the following day, a PSERS staffer noticed yet another performance discrepancy between Aon’s reporting and the reporting from Aksia, another PSERS consultant.

Following that discovery, PSERS’s staff contacted Aon over a dozen times, according to the report. “Aon either responded that it was still researching the issue, or, in some cases, failed to respond all together,” Womble said. Eventually, on January 7, 2021, Aon responded with a draft report, which Womble said did not address whether the total fund performance was impacted by this error.

Soon after PSERS received that report, Grossman spoke with Aon representatives, who said the issue was one of “misplaced cash flows” but not missing money. A month later, Aon representatives called Grossman again to share that the error did impact total fund performance.

“It appears that the cash flow errors were systemic due to the data entry error,” Aon told Womble in a written interview. It was caused by revisions to private credit and commodity cash flows and adjustments to performance reporting formatting.

Aon eventually disclosed this all to PSERS, taking responsibility for the error in March 2021. Still, PSERS launched the investigation that finally came to a close nearly a year later.

“Today marked an important milestone in the internal investigation and provided an opportunity at PSERS for both the board and staff,” board chairman Christopher Santa Maria said in a statement. “We are committed to learning from this process and will continue our best efforts to serve our members.”