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Pa. Auditor General says retirement system's Wall Street fees are too high

| Thursday, Aug. 10, 2017, 10:21 a.m.
Pennsylvania Auditor General Eugene DePasquale.
Nate Smallwood | Trib Total Media
Pennsylvania Auditor General Eugene DePasquale.

Pennsylvania's State Employee Retirement System has cut fees paid to investment managers by hundreds of millions of dollars since 2007, but it still spent $167 million in 2016 on Wall Street advisers — an amount Auditor General Eugene DePasquale says is too high.

“I am pleased that SERS is working to reduce the fees paid to Wall Street,” DePasquale said Thursday during a live-streamed news conference about an audit of the $27.5 pension fund. “I commend SERS for achieving considerable cost savings so far. Nonetheless, my audit found that SERS can still save more by taking every opportunity to negotiate lower fees and by competitively bidding every contract, every time.”

In 2007, SERS paid investment managers $345 million, meaning it has dropped $178 million in nine years, in part by shifting assets to a passive investment fund that mimics the composition of an index like the S&P 500 and doesn't require an outside manager to create a customized mix of investments.

The pension fund covers about 127,000 active state employees as well as more than 105,000 retirees. It has an unfunded liability of about $19.5 billion , DePasquale's office reported.

Auditors found that the pension fund followed its procedures, but “did not adequately pursue competitive offers and failed to document fee negotiations.”

In a response letter, SERS Executive Director David E. Durbin said the system would consider options to reduce fees by relying on internal investment managers rather than third-party managers.

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