US - Pennsylvania auditor general Jack Wagner has announced that the investment operations of the two major state pension funds will be the subject of performance audits by his office.
Washington-based consulting firm Independent Fiduciary Services (IFS) will conduct fiduciary reviews of the two funds in conjunction with the audits.
The decision is the result of an agreement reached between Wagner’s office and the US$52bn Public School Employees’ Retirement System (PSERS) and the US$26.6bn State Employees’ Retirement System (SERS). It settles litigation currently pending between the parties in the Supreme Court of Pennsylvania.
Under the agreement, the pension funds’ will withdraw their pending appeal of the October 2004 decision of the Commonwealth Court of Pennsylvania, which recognised Wagner’s authority to conduct performance audits. Wagner’s predecessor, Robert P. Casey, had brought the suit against the pension funds over the issue in 2003.
Commenting on the settlement, SERS chairman Nicholas J. Maiale said it was “an opportunity for SERS to demonstrate that we have nothing to hide and welcome public scrutiny”.
Roger H. May, chairman of PSERS, added: “We are pleased that all parties involved were able to negotiate a settlement without continued litigation. PSERS’ Board and staff look forward to finally moving ahead with an examination of our investment operations.”
Wagner’s office will conduct special performance audits of both funds, examining their: selection and monitoring of investment managers, advisers and consultants; recovery of money lost in corporate scandals; and efforts to invest in and contract with Pennsylvania firms. In addition, the office will review the effectiveness of the funds’ organisational structures and resources, and the suitability of the law governing the fund’s investments.
The court case has been the subject of negotiations between Wagner’s administration and the funds since he took office in January.
“I appreciate the funds’ willingness to work with us to find a way to move towards a truly positive result for the public,” Wagner said.
Casey, now state treasurer and a member of both pension fund boards, described the settlement as “great news for the beneficiaries of these funds and for all Pennsylvania taxpayers”.
Under terms of the agreement, the audits and fiduciary reviews are to begin immediately and the final reports will be made available to the public.
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