Last weekend, the Philadelphia Inquirer had this interesting article: “A bitter lesson on pensions: Are local governments, such as Pa.’s Luzerne County, able to run them?” The article highlights a lawsuit being brought in Luzerne County, Pennsylvania by the county pension board against current and past county commissioners, plus the outside managers who used to handle county pension investments. According to the article, the suit alleges commissioners and the contractors they hired entered into unauthorized contracts to buy inappropriate investments “in exchange for political contributions” over the last 15 years. The defendants have asked the court to dismiss the suit.
Christopher Cullen, a Scranton lawyer who, with Philadelphia’s Schnader Harrison law firm, represents the plaintiffs, says that the lawsuit is the first of its kind in Pennsylvania and predicts that the theme of the lawsuit will have widespread application in other states as well. The article quotes Don Trone, who heads the Center for Fiduciary Studies at the University of Pittsburgh and serves on the U.S. Labor Department pension advisory board, as saying: “You’re going to see many lawsuits like this as more people learn about the abuses that have been going on, from mutual-fund trading to pay-to-play.”
In a related article today, “Court won’t stop Casey from auditing Pa. pension plans“, the Inquirer reports that the Commonwealth Court of Pennsylvania has refused to bar Auditor General Robert P. Casey Jr. from auditing Pennsylvania state workers’ and teachers’ pension plans, allowing the dispute to proceed toward trial. The article notes that Casey wants to examine how the funds hire money-management firms, which are paid more than $250 million yearly in fees. He has also said he plans to examine whether campaign contributions by the fund managers have affected the investment process. The article reports that the Commonwealth Court, citing “persuasive and logical” rulings that upheld similar audits in New York and Philadelphia, in an opinion written by Judge Doris A. Smith-Ribner, overruled objections by the pension funds, which sought to deny Casey the right to conduct performance audits and the right to demand pension-fund documents.