Here’s one union that really likes management

August 2, 2021

For the teachers who rely on Pennsylvania’s biggest pension fund, the turmoil at the plan has gone beyond an FBI investigation and a failed board rebellion. This month, the fund’s weak investments did damage to their take-home pay, forcing 100,000 educators to pay more for their retirement

You would think that the main union for the state’s teachers might be hopping mad about that. Not so. The union remains what it has long been — a reliable bastion of support for the PSERS plan’s embattled executives and their controversial investment strategies.

Whenever dissidents have challenged PSERS — the Public School Employees Retirement System — the union-backed board members have swatted them down. Union members chair the fund’s board and its investments committee. With other board allies, notably, from legislators buoyed by the union’s campaign contributions, they have so far blocked any shakeup in management and investments.

Analysts say the union, the 138,000-member Pennsylvania State Education Association, has remained so loyal for a simple reason: PSEA leaders believe that the highly-paid pension fund executives, whatever their failings, share with the union an unswerving commitment to an old-fashioned $67 billion pension plan the union sees as under sustained attack.

In an era when private employers have all but stopped guaranteeing pensions and relentless retirement costs are eating holes in government budgets, the union-connected board members and the fund executives seem to agree that radical change would be poisonous for the plan. They have dug in, wary that calls for “reform” are just another cover for cutbacks.

“The pension system involves their livelihood,” said Terry Madonna, a senior fellow at Millersville University and veteran student of Pennsylvania politics. “So you won’t see any letup” in union support for PSERS, even if “results are not what they wanted. They have too much invested in the viability of the pension system.”

There has been plenty to stoke their fear. For the last decade, Republican and Democratic governors alike have relentlessly targeted the PSERS plan, along with SERS, its confusingly named, smaller sister fund for state workers. With bipartisan support, they have raised their retirement ages for new hires, cut their benefits and steered them toward 401k-style plans.

In the latest blow, another legislative fix move touted as a reform has for the first time forced school workers, not just taxpayers, to share the cost of poor investment returns. It mandated that school staff hired since 2011 must pay more this year into the retirement system to counteract the lackluster profits..

An embarrassed PSERS board approved that increase in April after acknowledging it had previously erred in declaring investment returns were high avoid to avoid a hike. The board has also had to cope with the ongoing FBI probe into two seemingly unrelated matters: the botched calculations underlying the exaggerated returns and the fund’s purchase of real estate near its Harrisburg offices for vague development plans.

Now, after months of controversy at PSERS, the union’s posture is facing perhaps its most serious challenge. Its far smaller if more militant rival, the 36,000-member American Federation of Teachers Pennsylvania, has called for the outright ouster of PSERS executives and most of the board. Even within the PSEA, grumbling about the board members has grown louder.

“I am extremely upset at their performance, or lack thereof,” said Al Taylor, a retired vice president of the Centennial Education Association, a local in Bucks County. “They do not represent our interests. I cannot understand them buying parking lots in Harrisburg. What the hell does that have to do with education and retirement? ”

Chris Lilienthal, a union spokesman, dismisses the criticism as over-heated.

“To call for dramatic changes at PSERS, before all the facts are known,” Lilienthal said, “is grossly irresponsible.”

PSERS trustee Jason Davis, a high school teacher from Western Pennsylvania who chairs the investments panel for the volunteer board, has also counseled colleagues against sweeping change. “This is a mature system,” Davis cautioned at a recent meeting.

He is one of five veteran PSEA leaders on the 15-member board, the largest bloc.

Melva Vogler, 87, a retired math teacher from the Poconos has served on the PSERS board for over a quarter century, more than any other member. She stands by her votes backing the the investment staff and management. “I have no complaints,” she said.

She and Davis were skeptical voices when the board recently curtailed travel expenses, a step taken after The Inquirer reported that investment officials on fund-paid travel had run up nightly hotel bills sometimes exceeding $1,100. “We are punishing ourselves just to look good,” Vogler said.

Davis, who didn’t respond to a request for comment for this story, cast the sole vote against tightening the rules.

In all, the pension plan serves more than 500,000 men and women, split almost evenly between those still on the job and paying into the system versus retirees receiving more than $6 billion yearly.

Among those in retirement, nearly half quit working after at least 30 years and collect about $45,000 yearly, boosted by a pension formula that for many years was among the nation’s most generous for teachers. That formula has since been scaled back. Overall, the median annual payment is far lower — $20,500. And the last cost-of-living hike came 18 years ago.

The union’s clout stems in large part from simply how the board is selected. Consider that while Gov. Tom Wolf names most on the SERS board, he puts only three members on the PSERS panel. Those three have taken a dissident stand, but much of the rest of the board is split. That leaves the union a dominant force.

Among other board members, two — State Rep. Matt Bradford (D., Chester) and State Sen. Pat Browne (R., Lehigh) — have been reliable voting allies for management and the union bloc. Over the last decade, the PSEA’s well-financed political action committee has given $100,000 to Bradford’s campaigns and $68,000 to Browne’s.

In April, the PAC gave a small campaign donation to another legislator on the board, State Rep. Frank Ryan (R., Lebanon). This was its first such gift to him. Ryan has questioned management investments but in June declined to join the dissidents calling for the dismissal of PSERS executive director Glen Grell and investments chief James H. Grossman Jr.

“Don’t know why” the union suddenly backed him, said Ryan. Browne and Bradford did not reply to requests for comment.

Despite their power, the union board members trustees chafe at any suggestion they are a monolith. “We are not a bloc. We never, ever coordinate how we are going to vote,” Debbie Beck, an Upper Darby school purchasing secretary, said in an interview.

In term of political connections, the union/management allies may have another key weapon — veteran executive director Grell. After serving 11 years as a Republican lawmaker for a suburban Harrisburg district full of state workers, he has run PSERS since 2015.

Despite the calls for his firing, insiders says Grell has a good reputation among his old colleagues in the legislature. As criticism of PSERS grows, his backers see him as the best man to blunt the complaints.

“In a matter as controversial as public employee pensions, few people commanded more respect from both sides than Glen Grell,” says Chad Trainer, former political director of the state AFL-CIO union federation.

For years, some critics say, the union could shrug off the fund’s relatively poor financial performance. When investments fall short, pensions are still guaranteed, unlike with 401k plans.

Moreover, taxpayers account for most of the system’s funding ― putting in nearly $5 billion last year, more than four times the $1.1 billion from school employees. Investment profits vary, averaging about $3.7 billion a year over the past 10 years.

Donna Cooper, a top aide to former Gov. Ed Rendell, said at PSERS board meetings she attended, members were beguiled by the pitches of Wall Street money managers and the system’s own investment staff. However investments fared, Cooper said, the teacher reps on the board knew taxpayers would bear the cost. Thus, she said, “They had nothing at stake.”

“The returns were horrible. But the board members would get a song and dance from the staff — ‘You want to look at how this portfolio is doing, not at those individual investments,’ Cooper added. “It made my head explode.”

“Nobody thought about the fact it was a horribly-run operation costing the taxpayers tons of money. But now it’s even costing the teachers more.”