The board of Pennsylvania’s largest public pension system on Monday night voted to raise contribution rates for tens of thousands of public school employees, part of the fallout from what system officials have called a mistake in calculating the fund’s long-term investment performance.
However, there is doubt about the legality of the move by the $64 billion Public School Employees’ Retirement System board, which comes as system officials answer questions from federal investigators about the calculation and other matters.
If the increases take effect, contribution rates would rise starting next July 1 for about 94,000 public school employees, all hired in 2011 or after.
The board voted nearly unanimously to increase the contribution rates after it had originally certified them at lower rates in December.
The lone “no” vote came from Senate Appropriations Committee Chairman Pat Browne, R-Lehigh. In brief comments to fellow board members before the vote, Browne warned that current state law does not allow the board to recertify employee contribution rates, suggesting that the higher rates will not take effect if the Legislature does not act.
“The current statute as written, without amendment, requires us to change the law before we’re able to recertify," Browne said.
If the Legislature does not change the law and the higher employee contribution rates do not take effect, taxpayers will be on the hook for the cash. The system will not say how much money is at stake.
The board last month revealedthat it was investigating a consultant’s calculation about the fund’s investment performance last year. The board has not named the consultant that made the error.
The original calculation — 6.38% growth over the nine years ending last June 30 — was slightly above a 6.36% growth threshold, thus protecting school employees hired after 2011 from seeing a higher risk-sharing contribution rate kick in next July 1.
Following a review, the board on Monday night said the consultant and a separate firm told the board that the actual nine-year performance figure was 6.34%, thus triggering a risk-sharing provision in law that requires employee contribution rates to rise.
If the higher rates take effect, most of those 94,000 school employees would see their contribution rate rise by 0.5% of their salary. A smaller number of them would see their contribution rate rise by 0.75% of their salary.
System officials earlier this month confirmedthat the agency had been served with a grand jury subpoena for documents by the U.S. attorney’s office in Philadelphia.
System officials only confirmed the existence of a subpoena after state Treasurer Stacy Garrity told lawmakers at a Senate Appropriations Committee hearing that “federal subpoenas have been served on several PSERS management officials.”
Garrity, system officials and board members — which includes state lawmakers and two members of Gov. Tom Wolf’s Cabinet — have declined to disclose the nature of the federal investigation.
However, The Associated Press reportedearlier this month that two people directly briefed on the contents of the subpoenas and another person briefed second-hand on them say federal investigators are requesting information surrounding the pension system’s purchases of adjacent parcels of land in downtown Harrisburg.
One of the three people said the subpoenas also seek information regarding the risk-sharing calculations. A spokesperson for the U.S. attorney’s office in Philadelphia has declined comment.
