Investigator reveals PR effort to deflect pension fund accounting error


It’s not often that the public gets to look into the inboxes of the executives of one of the nation’s largest pension funds. But that’s exactly what happened last month, when the Philadelphia Inquirer revealed behind-the-scenes conversations among leaders of Pennsylvania’s public school employee retirement system as they tried to fend off criticism from a board member.

The Inquirer’s investigation is largely based on emails that Reporters Committee lawyers helped the newspaper obtain through public records litigation. Using those records, which pension system officials agreed to hand over after reaching a deal with the newspaper, reporters Craig McCoy and Joseph DiStefano showed how executives “circled the wagons” to ease concerns from former State Treasurer Joe Torsella regarding the finances of the fund.

The emails were “super revealing,” said McCoy, who praised the work of lawyers from the Committee of Reporters in helping to free them. “And they were extremely newsworthy because they got into the public relations facade of this place and the real feelings they had for the people who were raising questions.”

Penetrating “a real fortress”

The $70 billion pension fund serves more than half a million current and retired Pennsylvania public school employees. Its problems have been widely documented by the Inquirer, but McCoy says accounting for the fund is no easy task.

“It was a real fortress,” he says. “It is very difficult to get information from the place.”

The pension fund is currently the object of investigations by the FBI and the United States Securities and Exchange Commission, including investigations into return on investment figures the fund reported in December 2020, figures which were later found to be incorrect.

McCoy and DiStefano wanted to know why the accounting error was made — and whether it was a mistake or intentional. As McCoy explains, the mistake was far from trivial. If the numbers had been reported correctly, he says, it would have triggered a rate hike.

So, about a year ago, the two reporters submitted requests under Pennsylvania’s right-to-know law for communications between fund staffers and three consulting firms. If there was an answer to their questions, they thought, it might be in those inboxes.

“We held their feet to the fire”

Accessing these emails was not easy. While fund officials initially turned over some documents, they withheld many others, prompting the Inquirer to challenge those withholdings to the state’s Office of Open Records.

Last October, the agency ordered the pension fund to produce some of the requested documents. But he concluded that other files could be kept secret. For example, the agency found that some records were exempt from disclosure because they were considered “non-criminal investigative records,” while others were exempt because they revealed confidential proprietary information.

Inquirer reporters asked the Office of Open Archives to reconsider its decision. And in an unusual move that suggested the importance of the case and the documents involved, the agency agreed to take another look. It was then that the Committee of Rapporteurs intervened and argued the case before the OOR. In the end, however, the agency largely stuck to its original decision.

Still, the Inquirer continued to challenge the deductions, with pro bono legal support from Paula Knudsen Burke, an attorney for the RCFP’s Local Legal Initiative in Pennsylvania, and Kamesha Laurry, an RCFP legal member for racial equity in the journalism.

In January, the newspaper sued the pension fund in Commonwealth Court, asking it to overturn the agency’s decision and order the publication of the requested records. But before the case even reached trial, fund officials reached a settlement with the Inquirer and agreed to turn over the documents.

“They fell apart,” said McCoy, who praised the “excellent legal arguments” Burke and Laurry were preparing to make in court. (The case was settled before the newspaper filed its main brief).

“Pushing them made a difference for us,” Burke added. “We held their feet to the fire, and I think they finally realized it was serious and they either had to spit out the cases or deal with it in court. And once they looked at it, I think they realized that the best choice was to provide the recordings.

Main conclusions

As McCoy and DiStefano reported, the emails obtained through the successful litigation provided important insight into how pension fund executives handled a vocal critic of the fund’s performance. Here are some key takeaways from the Inquirer’s investigation:

  • After Torsella interrogates how the fund calculated its returns in 2020, PSERS executives, along with outside consultants, spent three weeks trying to figure out how to respond. In an email exchange, the Inquirer reported, executives “asked the team if they could ‘enrich’ the response ‘with official-sounding phrases’.”
  • Leaders considered including language that addressed Torsella’s concerns about leadership transparency with board members. But they eventually deleted those comments.
  • The fund’s executive director requested deletion of language in a draft response that “suggests [Torsella] is correct in his criticisms.
  • Torsella expressed concerns about leaders’ obsession with massaging their messages. “I find anything that suggests a spin problem on substance deeply troubling,” he told the Inquirer. “[A]Any investment culture that focuses more on rebutting perceived “criticism” rather than welcoming the healthy dialogue and transparency that are essential to good governance does not serve the beneficiaries. »
  • The message executives eventually sent to Torsella claimed there was no problem with the 2015 ROI numbers reported by the board. However, as the Inquirer pointed out, the fund “later admitted that its performance numbers were wrong and too high.”

McCoy says the experience of fighting over those telltale email records taught him an important lesson in investigative reporting: “Be persistent and stay in the game.”

If the newspaper, with the support of the commission of journalists, had not sued the pension fund, these files would probably never have been made public.

“Paula and Kamesha were crucial. They did a great job,” he said. “Obviously it was wonderful because [the legal support] was free. It’s great to have this high-level support and to [the Reporters Committee] to pay the bill. »

The Committee of Rapporteurs regularly submits memoirs of friends of the court and his lawyers representing journalists and media outlets voluntarily in court cases that involve First Amendment freedoms, newsgathering rights of journalists, and access to public information. Stay informed of our work by subscription to our monthly newsletter and Follow us on twitter Where instagram.


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