The saga over a performance reporting error at the Pennsylvania Public School Employees’ Retirement System is not over yet.
On Monday, PSERS filed a complaint in its state court against Aon Investments, alleging that the consultant made performance reporting errors that have since cost the pension fund millions in damages. PSERS manages $71.9 billion in assets.
“Through this litigation, PSERS seeks to hold Aon accountable for the errors it made related to PSERS’ 2020 risk share analysis and recover damages to compensate PSERS for the significant and ongoing harm Aon has caused,” the pension fund said in a statement.
A spokesperson for Aon said, “We decline to comment due to pending litigation.”
The incident at issue in the lawsuit became public in 2021, when PSERS revealed that it had found an error in the reporting of investment performance results. The error had a large impact on the fund: The difference in basis points meant that PSERS would have to raise its member contribution rate, despite having previously told plan participants that this would not happen.
Since then, PSERS has been under scrutiny: The pension became the subject of a Justice Department investigation, it launched its own internal investigation, and its executive director and chief investment officer resigned.
The internal investigation revealed that PSERS was not at fault, with the outside investigative firm claiming that Aon was responsible for the error. The DOJ also dropped its investigation, and PSERS hired new executives.
Now PSERS is trying to recoup damages related to Aon’s alleged error in court, as well as gain clarity as to how the alleged mistake was made.
“In the course of providing investment performance reporting and other professional financial services to plaintiffs over many years, Aon made an error,” the complaint filed against Aon on Tuesday said. “Perhaps it was a series of errors. Plaintiffs do not know for sure because, while Aon repeatedly admitted and acknowledged that it had made certain mistakes, to date — almost two and one-half years since Aon’s admissions — Aon has not fully come clean as to what actually occurred, and what it did and/or did not do.”
PSERS said that it had a five-year contract with Aon, which began in 2019. As a part of that contract, Aon calculated PSERS’ rate of return, which the group’s actuarial consultant, Buck Global, then used to calculate whether the pension fund had met its hurdle rate. If the hurdle rate is not met, PSERS has to go to its plan participants to ask for a contribution increase — something pension funds want to avoid.
In the year leading up to PSERS’s public revelation of the reporting error, the pension fund and Aon went back and forth on a discrepancy between historical quarterly returns, according to the lawsuit. The suit alleges that Aon eventually blamed the data on an error made by its analyst, who was uploading net asset value and cash flow data into the performance measurement system that the consulting firm uses.
PSERS believes that this error constitutes “negligence, breach of contract and fiduciary duty, fell below the applicable standard of care, and caused the substantial damages.” As a result, PSERS says that Aon must follow the agreement the two parties signed previously, indemnifying PSERS and covering its legal fees.
PSERS is specifically suing Aon for breach of contract, breach of fiduciary duty, professional negligence, negligence, gross negligence, and negligent misrepresentation.
The pension fund is asking for the judge to require Aon to pay punitive damages, attorneys’ fees, pre- and post-judgment interest, and all costs related to the lawsuit. Additionally, PSERS is asking that the judge rule for Aon to return the fees PSERS already paid, and for declarations that Aon breached the contract, must indemnify PSERS, and must offer access to records and database.
