After 33 years as a lawyer for the state of Pennsylvania, Jackie Wiest Lutz spent just 10 months as Chief Counsel for the troubled PSERS pension plan before announcing her retirement Wednesday, as directors approved paying nearly $1.2 million to outside law firms handling investigations of the $73 billion fund.
Lutz served “in very difficult circumstances,” said Chris Santa Maria, the system’s board chairman.
Three months into Lutz’ service, PSERS — the Public School Employees’ Retirement System — admitted that it had exaggerated investment returns and hired an outside law firm to investigate. Also in March, Lutz’s office was visited by FBI agents bearing subpoenas demanding information about that error and the agency’s Harrisburg land deals. The firm hired more outside law firms to defend against that criminal probe.
In June, dissident trustees tried unsuccessfully to oust Lutz’s boss, executive director Glen Grell and the chief investment officer James Grossman. Last month, the U.S. Securities and Exchange Commission sent PSERS its own subpoena seeking information about the error and any potentially illegal “gifts” from Wall Street fund managers who fronted travel expenses for agency staff. No one has been accused of wrongdoing.
Dealing with all those investigations remotely wasn’t easy either.
Lutz will be temporarily replaced by lawyer Charles Serine, the longtime PSERS chief counsel who retired last year, until the system finds a permanent replacement.
Lutz served in “a very challenging time,” affirmed the audit committee chair, state Rep. Frank Ryan (R., Lebanon) after the board passed a thank-you resolution. “Rough times,” said Jason Davis, the investment committee head, in his own thank-you message. “Rough ways to go,” agreed trustee Debbie Beck.
Beck is leaving, too. The Upper Darby School District purchasing manager and union leader declined to run for reelection as PSERS’ representative for non-teaching school workers, an unpaid post that has included near-weekly meetings, and bimonthly three-day sessions, since the investigations started in March.
Since no one answered PSERS’ invitation for candidates to replace Beck, the board canceled a scheduled election and appointed Ann Monaghan, president of a school labor union in the Lake Wallenpaupack school district in the Poconos. That district is also home to the agency’s longest-serving trustee, retired teacher Melva Vogler, who endorsed Monaghan. “I have worked with Ann for years. I think you will find she is capable,” Vogler said at an Oct. 8 meeting confirming the move.
Nor did any candidate file to run for the teachers-only board seat now held by Sue Lemmo, an art teacher and union leader in Curwensville, northeast of Pittsburgh. Lemmo agreed to serve another term. With no race, that election was canceled, too.
PSERS also voted Wednesday to approve payments to several law firms, after months of delays at the state treasury following trustee concerns about whether the firms were doing work authorized by their contracts.
The board approved paying up to $700,000 to Philadelphia-based Morgan Lewis & Bockius, and expand the firm’s work advising PSERS about the FBI. The firm will continue helping with the SEC investigation, and the agency’s defense from a lawsuit by one of its trustees, state Sen. Katie J. Muth (D., Montgomery), who is seeking records the agency refuses to divulge.
Morgan Lewis has so far billed PSERS $956,000 but had not yet collected any of the money as of last week, according to state Treasury records.
PSERS also agreed to pay up to $150,000 to Pillsbury Winthrop Shaw Pittman lawyers for past work defending against the Muth suit, which its lawyers have been doing since it was filed last summer.
“The easiest way to cut our legal bills is if we can find settlement” of that inter-board lawsuit, said trustee Nathan J. Mains, who represents the state’s school boards, which pay $2 billion a year to help keep PSERS solvent. “This seems like it should be an eminently settleable case.”
Muth said she has offered to settle, twice. She cast the lone votes against paying Morgan Lewis and Pillsbury.
Also, the board agreed to pay another $35,000 to the Womble Bond Dickinson law firm. Ryan’s audit committee tapped Womble in March to conduct its internal investigation of the inflated investment numbers. The firm is expected to report results to trustees as soon as early November.
The system has already paid Womble $141,000 under a contract worth up to $367,500.
Plus, the board agreed to pay up to $300,000 to the law firm Cohen Milstein Sellers & Toll, whose partner Suzanne Dugan serves as PSERS’ fiduciary counsel, for its work on the grand jury investigation and the Muth lawsuit. The system has paid Cohen Milstein $210,000 so far this year.
And the board agreed to pay $24,000 to Adviser Compliance Associates LLC (ACA Compliance Group) for “additional testing services” during the work it did reviewing the flawed investment returns, one of the events that sparked the federal investigations.