January 25, 2024

The penalty is related to misleading statements the adviser made to the Pennsylvania Public School Employees’ Retirement System.

The Securities and Exchange Commission (SEC) has settled charges with Aon, an investment adviser, for providing misleading statements to the Pennsylvania Public School Employees' Retirement System (PSERS) in 2020. This incident had significant consequences for the pension fund. Aon has agreed to pay approximately $1.5 million in penalties and disgorgement.

Richard Vague, Chairperson of the Pennsylvania PSERS Board, expressed satisfaction with the SEC's actions and emphasized the positive impact it would have on the fund's members. He also thanked the PSERS staff and outside counsel for their effective representation in this matter.

According to the SEC's order, Aon inaccurately reported asset performance data to Pennsylvania PSERS for the second quarter of 2015 and misrepresented the reason for the discrepancy. The data reported by Aon was approximately 37 basis points higher (-0.1723 vs. -0.5087) than its previous reports to the fund.

The error caused by Aon's inaccurate reporting of asset performance data led to the miscalculation of a nine-year return for Pennsylvania PSERS, reported in June 2020, which should have been 6.34%, not the reported 6.38%. This led to the pension fund's participants being incorrectly informed that they would not need to contribute more, when in fact they would. This was significant because under Pennsylvania law, teachers must contribute more to their pensions if asset returns underperform a benchmark, which was 6.36% in this case.

As a result of the controversy, the pension fund was subject to a Department of Justice investigation, which concluded without any finding of wrongdoing in August 2022. Furthermore, the fund's executive director and CIO both resigned in 2021.

During the correction process, Pennsylvania PSERS asked Aon to investigate the discrepancy between the returns reported in 2020 and those reported in 2015. Aon falsely claimed that the gap was due to an adjustment based on more recent data, which was not the case. In reality, the error was caused by faulty data entry. Additionally, Aon reported to Pennsylvania PSERS that the adjustment reflected a change in market value related to a private credit fund, even though records showed that Aon had ruled out this explanation about a week earlier, according to the SEC.

The SEC also fined an individual partner at Aon $30,000 for making the misleading statements.

Pennsylvania PSERS terminated its contract with Aon in December 2023; Aon had served as the fund’s adviser since 2013. Verus Investments is the new adviser for the fund, and there is a pending lawsuit brought by Pennsylvania PSERS against Aon in August 2023.

Tags: Aon, Penn PSERS, PSERS, SEC