Chicago-based Aon Investments has agreed to pay $1.5 million in penalties to settle Securities and Exchange Commission charges that the firm committed fraud by making misleading historical reporting statements to the Pennsylvania Public School Employees’ Retirement System, which triggered wide-ranging consequences for the pension fund.
Aon partner and investment advisor/registered rep Claire P. Shaughnessy, 56, also settled charges that she breached her fiduciary duties and committed fraud by identifying historical return reporting errors and not disclosing them, the SEC said. She agreed to be censured and pay a $30,000 fine.
Aon and Shaughnessy reported incorrect asset performance data to Pennsylvania PSERS for the second quarter of 2015 and then misrepresented the reason for that discrepancy to the fund, according to the SEC.
“Investment advisers must be scrupulously honest with their clients,” LeeAnn G. Gaunt, chief of the SEC's Public Finance Abuse Unit, said in a statement. “Pension funds and other municipal entities should be able to trust that their investment advisers are telling them the truth.”
Aon miscalculated historical returns for a nine-year return, reporting a return of 6.38% in June 2020 when it should have been 6.34%, the SEC said. This caused PSERS to report to teachers and employees in the school system that they would not need to contribute more to their pension fund. That turned out to be false, and the pension later had to inform employees they did need to make additional contributions, the SEC said. A Pennsylvania law requires teachers to contribute more to their pension if asset returns underperform a benchmark, in this case 6.36%.
Aon and Shaughnessy were asked by officials of the pension system to investigate the gap between returns reported in 2020 and those reported in 2015, but both “failed to adequately investigate the discrepancy,” the SEC said.
Aon misstated to Pennsylvania PSERS that the discrepancy was not due to calculation errors but instead “reflected retroactive adjustments to the returns reported ... to reflect updated figures received after quarter close.”
Aon also reported to the pension system that the adjustment reflected a change in market value related to a private credit fund despite ruling out this reason for the discrepancies a week earlier, the SEC said.
The miscalculations were due to errors in the underlying data, the regulator said. When the rate was recalculated, the corrected return rate was 6.34% – triggering risk share that required additional employee contributions.
Both the pension fund’s executive director and CIO resigned in 2021 over the matter, the SEC said. The accounting errors and misreporting also triggered a Department of Justice investigation, which DOJ closed in August 2022 without finding wrongdoing.
On July 31, 2022, the Pennsylvania Public School Employees’ Retirement System sued Aon Investments USA, accusing the firm of breach of contract, breach of fiduciary duty and negligence, stemming from the miscalculation that caused PSERS to inaccurately report its returns in December 2020. The civil suit is still pending before Pennsylvania’s Court of Common Pleas for Philadelphia County.
Aon did not respond to request for comment. Shaughnessy could not be reached for comment.
"I think Aon's violations are obvious.Fiduciary duty and care are obviously the key considerations when working with retirement plan clients," said James Watkins, a pension attorney and CEO of InvestSense, LLC, which provides companies with pension risk and return analyses. "When it comes to relying on performance data from funds, the inability to independently verify such data is always a concern,” Watkins said.
"To me, this raises the obvious question - why is it that plans needlessly complicate their plans and expose themselves to unnecessary fiduciary liability exposure when they could avoid such pitfalls by simply modeling the federal government's Thrift Savings Plan (TSP)?" he added.