Aon Settles SEC Charges Related to PSERS Miscalculation

The miscalculation cost the pension millions.


Illustration by II

Years after the Pennsylvania Public School Employees’ Retirement System discovered that Aon had made costly performance reporting errors, the consultant has settled charges related to the incident with the Securities and Exchange Commission.

On Thursday, the SEC announced that it found that Aon was responsible for a discrepancy in calculating the $69.8 billion pension fund’s investment returns.

“We are pleased to have resolved this matter, which did not impact plan assets,” a spokesperson for Aon said via email Thursday. “Our firm remains focused on continuing to provide exceptional service to clients.”

Meanwhile, Richard Vague, chair of PSERS’s board, said: “We are pleased with the developments today from the SEC and equally excited to be sharing such positive news with our members.”

Although the mistake was small — the original calculation, 6.38 percent for the nine-year period ending June 30, 2020, was revised up to 6.34 percent — it pushed PSERS over a meaningful threshold. The downward revision of performance tipped the returns under PSERS’s 6.36 percent benchmark, forcing the fund to ask its beneficiaries to contribute more to their pension funds. The fund had to do so after telling beneficiaries that they would not have to contribute for the year.

The debacle was discovered by PSERS months after it happened. According to the SEC’s announcement, Aon, along with former partner Claire P. Shaughnessy, who was also charged, “failed to adequately investigate that discrepancy, instead providing PSERS with two reasons for the discrepancy that Aon had previously ruled out.”

According to the SEC, amid these questions from PSERS, Aon employees hypothesized that the discrepancies could have been caused by a pension plan restructuring that took place in 2019, or adjustments to a specific investment’s performance returns in 2016. In August 2020, Aon quickly ruled out both possibilities internally — but then offered them up as explanations to PSERS, the SEC alleged.

In December 2020, Aon realized the true cause of the misstatements: Errors in its calculations of the pension plan’s 2015 performance, according to the SEC. That month, Aon emailed one of its software representatives, saying: “We think one of the [Aon] analysts accidentally wiped accounting data from PSERS for April 2015 and need to figure out how to restore/fix.” But the consultant didn’t report this matter to PSERS.

In fact, according to the SEC, Aon didn’t reveal this error until February 2021. The fallout was significant: PSERS launched an internal investigation. It faced a Department of Justice probe that has since been closed. The fund’s board attempted to retain Verus Investments as an outsourced chief investment officer, a plan that was ultimately rejected. However, soon after, chief investment officer Jim Grossman and executive director Glen Grell announced their retirements. In August, PSERS sued Aon.

“Investment advisers must be scrupulously honest with their clients,” said LeeAnn G. Gaunt, chief of the SEC’s public finance abuse unit in a statement. “Pension funds and other municipal entities should be able to trust that their investment advisers are telling them the truth.”

Aon, along with Shaughnessy, did not admit or deny the SEC’s findings. Aon settled an order finding that it had violated Section 206(2) of the Advisers Act and agreed to pay a civil penalty of $1 million and prejudgment interest of $542,187. Shaughnessy also agreed that she violated the act and paid a civil penalty of $30,000.

This story was updated on January 26.