Dive Brief:

• The Securities and Exchange Commission announced Friday it settled charges against Aon Investments USA, a Chicago-based investment adviser, and its former partner, Claire Shaughnessy, for misleading the Pennsylvania Public School Employees’ Retirement System about “the reason for a discrepancy between two different calculations for the large pension fund’s investment returns.” 

• The case centered on questions raised by the pension fund regarding a discrepancy that Aon failed to “adequately investigate” related to reports on an investment return rate for a nine-year period ending June 30, 2020. The rate was tied to a “risk-share” provision that required public-school employees to contribute more to their pensions if it fell below 6.36%. 

• Without admitting or denying the findings, Aon agreed to pay a civil penalty of $1 million and disgorgement and prejudgment interest of $542,187 and Shaughnessy agreed to pay a $30,000 civil penalty. “Investment advisers must be scrupulously honest with their clients. Pension funds and other municipal entities should be able to trust that their investment advisers are telling them the truth,” said LeeAnn G. Gaunt, chief of the SEC’s public finance abuse unit.

Dive Insight:

Beginning in June 2020, the pension fund staff “repeatedly raised questions” about Aon’s risk share return rate calculations, noting a 37 basis point gap difference between the 2015 performance returns used to calculate the rate and the performance returns reported for 2015 in the state’s Annual Comprehensive Financial Report, according to the SEC’s Friday order.  

The discussion around the calculation model drew in the pension fund’s CFO during a Dec. 3, 2020 PSERs board meeting when a board member asked if the return rate calculation used the values in the annual report.

The finance chief said he had not used those values, but offered to. During the same meeting, an Aon partner and PSER’s CIO exchanged emails and concluded that the return using the annual report’s numbers would be 6.34%, triggering the requirement that teachers kick in more money.   

“Despite the importance of this question to PSERS, the Aon Partner did not initiate further investigation into the cause of the discrepancy in reported returns and assured PSERS that the 6.38% result was correct,” the order states.

In addition to not adequately investigating the discrepancy, Aon also “misstated” that the difference was not due to errors but instead reflected retroactive adjustments to the returns reported in the Annual Financial Report to reflect updated figures received after quarter close.” It wasn’t until March of 2021 that AON informed PSERS management that the corrected rate was 6.34%, requiring additional contributions from employees who were part of the plan.

In a Friday press release, PSERS Board Chair Richard Vague said the pension fund was “pleased with the developments today from the SEC,” stating they had been informed by the SEC that it has “concluded its investigation of PSERS without recommending any enforcement action be taken.”

In a Monday email, an Aon spokesperson wrote that the company was “pleased to have resolved this matter,” noting that it did not impact plan assets.