Was there bribery involving Pennsylvania's pension system? SERS wants to know

Chester County millionaire Richard Ireland, right, escorted into the Federal Court Building in Harrisburg last August by his bodyguard for a hearing. A federal judge tossed out the case against Ireland in March but questions linger about how Pennsylvania's pension system hires investment managers.

The giant Pennsylvania State Employees' Retirement System (SERS) plans to hire a law firm to check for illegal conduct by SERS officers and come out with a report by summer.

"We're trying to see if there is a problem" after last month's federal trial of Chester County money manager Richard Ireland, said spokeswoman Pamela Hile.  

Bribery charges against Ireland, 79, were thrown out last month by Judge John E. Jones III.

But two weeks of public disclosure about how former state treasurers hired and fired money managers raised additional questions about how the state invests the funds in its needy pension system.

Former Treasurer Rob McCord resigned in 2015 and pleaded guilty to extorting contributions from Ireland and others.

At Ireland's trial, McCord testified that he offered to give out SERS investing contracts and other state business in exchange for cash. A predecessor, Barbara Hafer, faces trial for allegedly lying to the FBI about payments from money managers.

SERS, with nearly $27 billion in assets, gives checks to 120,000 retired troopers, corrections workers, judges, legislators, and other state employees, who outnumber the 107,000 active state workers still paying a small portion into the fund. With pension liabilities exceeding assets, Wall Street agencies have cut Pennsylvania’s credit rating to one of the lowest among the states, adding tens of millions a year in borrowing costs compared with more-solvent states like Maryland.

On Wednesday, the SERS board voted to hire lawyers after approving plans to replace some money managers with "low-fee" index funds, and boost taxpayer contributions.

The resolution, by David Fillman, the state workers' union leader who heads the SERS board and its audit committee, calls for finding lawyers "to review the occurrence of any possible noncompliance with laws and regulations committed by SERS, or any of its agents or employees, having been the subject of certain court filings and trial testimony in the matter of United States v. Ireland."   

At the trial, former SERS board chair Glenn Becker testified that he asked SERS staff to meet again with an Ireland firm's executives, knowing that Ireland was a McCord supporter, even after staff and consultants declined the investment.  

Retired SERS chief investment officer Tom Brier testified he told the FBI and the state inspector general that board chair Becker pressured him to hire the Ireland firm.

Becker said he spoke up for the firm as a "courtesy" to McCord, but had not told staff whom to hire. SERS did not hire the firm, but McCord did, for other Treasury funds; it was later fired over performance issues.

The trial disclosures were embarrassing for SERS. Other than McCord, a former SERS board member, “there are no claims that any other SERS staff or board members were involved in, or had knowledge of, the conduct underlying the accusations," Fillman said in a statement last year.

After Brier and Becker testified, Gov. Wolf called on Becker to "refrain from any involvement in asset management decisions until there is further clarification of his conduct described in the court filing." 

But with the trial over, Wolf said Becker could resume board duties, barring "further information."

Becker was not at Wednesday's monthly meeting and did not vote on plans by  SERS to invest an additional $300 million in buyout and real estate funds and make other investments. Becker's lawyer, George Bochetto, had no comment. 

SERS also voted to cut its annual investment target to 7.25 percent a year from 7.5 percent. Low targets are easier to hit but also trigger higher "employer contributions" from taxpayers. Including a change in its projected inflation rate, the net effect is to boost SERS's asset/liability deficit by $1 billion, to $20 billion. 

As a result, the projected charge taxpayers pay on top of every dollar going to state workers will rise to an average of 33.2 percent, a record high, from 32 percent last year.