Defender of big pension fund fires back against critics

In the aftermath of a failed attempt to oust the top two leaders of Pennsylvania’s largest pension fund, the retirement plan’s board remains deeply divided — as demonstrated in a new public statement from a board member who backed the fund’s longtime leadership.

Eric DiTullio, a suburban Pittsburgh construction estimator and one of two representatives of school boards on the 15-member panel, blasted the dissidents, complaining that they had gone public attacking the fund leadership without first taking their case to their board colleagues.

“Certain members,” DiTullio wrote in a letter last week to 4,500 local school board members, “have been engaged in politicking to get their way instead of open honest communication and discussions based in fact.”

In fierce behind-the-scenes campaigning earlier this month, six dissidents on the board tried and failed to pick up the two additional votes needed to fire PSERS executive director Glen Grell and investments chief James H. Grossman Jr.

They released a detailed critical letter before what the group had hoped would be a boardroom vote to oust them. In the end, the dissident bloc did not call for a vote, recognizing that it lacked the votes to prevail.

The six critics say Grell and Grossman had pursued a high-fee, low-reward investment strategy that has dragged down the plan’s performance and hurt 500,000 working teachers and retirees whose pensions are guaranteed by the plan. They said the fund would be worth billions more if it had merely achieved the same investment results as many other public pension plans.

But DiTullio dismissed that criticism, saying that although it was “largely factual,” it “was not provided in context or truthful.” He said the plan’s management had routinely met its own benchmarks for investment returns.

A state pension reform commission in 2019 ranked the Public School Employees’ Retirement System near the bottom among state investment performance over the previous decade and faulted the plan for using internal measures instead of comparing itself with similar plans elsewhere.

In his letter, obtained by The Inquirer, DiTullio also defended PSERS’s move away from U.S. stocks, a step it took after the Great Recession drastically drove down stock prices. This hurt the fund’s returns as stocks once again outpaced other investments, but DiTullio said it was a sensible attempt to find “steady, lower (but safer) returns, for long-term growth.” He noted that prior board members had approved that move.

The dissidents’ letter was signed by state Treasurer Stacy Garrity and issued on her agency’s letterhead. A Garrity aide declined to comment on DiTullio’s statements.

DiTullio didn’t identify the “certain members” he was criticizing. As it happened, besides Garrity, another of the six was the other school board representative on the panel, Nathan Mains.

Under the complex system to select PSERS board members, Mains holds his seat ex officio, by dint of his role as chief executive of the Pennsylvania School Boards Association. DiTullio, for his part, was reelected to the PSERS board in January, winning 234-214 in an election open only to school board members in which turnout was just 10%. Mains’ association endorsed DiTullio’s opponent.

While DiTullio said he wrote his letter to set the record straight, his letter misstated key facts about the issues confronting PSERS — notably about the FBI investigation of the fund that surfaced in the spring.

In the letter, he advised his fellow school board members that there was no relationship between the FBI probe and the board’s adoption last year of an incorrect and exaggerated figure for the fund’s investment performance. In April, the panel acknowledged that the number was wrong

But as The Inquirer has reported, FBI agents served pension leaders with grand jury subpoenas in March asking for “any and all” PSERS records related to that mistaken “calculation.” The math mistake forced a politically embarrassing increase in pension contributions from 100,000 school workers.

Asked in an interview how that squares with his statement that the probe and the calculation were “unrelated,” DiTullio acknowledged that “I haven’t seen the subpoena.”

In his letter, DiTullio suggested that part of the federal inquiry might go beyond what has previously been reported.

The subpoenas said federal authorities were also investigating the agency’s purchase of properties in Harrisburg, purchases that began in 2017. But DiTullio told the school board members that the probe was “looking into property procured by the fund dating back to 2015.”

That year, PSERS staff reversed a former policy and began directly buying orchards, apartments, a chain of trailer parks, and other properties, instead of going through Wall Street investment managers.

Asked whether he’d been told investigators are checking other deals besides the Harrisburg acquisitions, DiTullio demurred. “That could be,” he said, but “I don’t know that for sure.”