PITTSBURGH -- A Team 4 investigation finds pension fund employees staying at five-star resorts in London, Paris and even Monte Carlo -- and the way they're paying for these trips is raising concern with top state officials.

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Earlier this year, Team 4's Paul Van Osdol found state employees spending hundreds of thousands of dollars on trips after Gov. Ed Rendell ordered a travel ban.

Officials of the two big state pension funds say they've been able to get around the travel ban because taxpayers are not paying for most of their trips. Instead, the investment managers hired by the state are covering the cost.

Here's the catch: The state employees traveling to these exotic places are the same people whose job it is to keep an eye on the money managers paying for the trips.

The following report by Van Osdol first aired May 12, 2009, on WTAE Channel 4 Action News at 5 p.m.

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Spectacular views of Big Ben, the Houses of Parliament and the city of London -- for $596 a night, the rate paid by a state teachers pension fund employee, you'd better get a great view.

Pension fund employees frequently stay at places with spectacular views -- the Eiffel Tower from the Four Seasons in Paris, the Mediterranean from the Monte Carlo Bay in Monaco, the Atlantic from the Ritz Carlton in Key Biscayne and the Arizona desert from the Sanctuary Resort and Spa.

Officials of the school and state employee pension funds say they have to stay at these ritzy resorts. That's where money managers who invest billions of pension dollars hold meetings and conferences.

The pension fund employees are supposed to closely watch the money managers to make sure the state is getting its money's worth. But the money managers -- who are paid millions by the pension funds -- are picking up the tab for those lavish trips.

Van Osdol: "Is it possible they're going to, perhaps, not be as objective in their view of these companies if the company they're supposed to be reviewing is putting them up in a very nice hotel and wining and dining them?"

Robert Gentzel, State Employees' Retirement System: "No, I don't think so. These are professionals. These are business trips that they're on. If you look at the itineraries on many of these trips, they're a grind."

State Treasurer Rob McCord, who sits on the boards of the school and state employee pension funds, is concerned about the potential for conflict. He was not aware that the money managers were paying travel costs until Team 4 told him.

McCord: "In this kind of climate, people want to feel public servants don't have conflicts, are doing their very best to help people in these challenging times."

The state employee pension fund paid $1.1 million in fees last year to a money manager who then paid at least $975 per night for a pension fund employee to stay at the Four Seasons in Paris -- the one with the view of the Eiffel Tower.

The pension fund paid $2.6 million in fees to another money manager who paid for an employee to stay at the $490 room in Monte Carlo, and the teachers pension fund paid $17 million in fees to five money managers who put up a pension employee at that $596 per night hotel in London.

Van Osdol: "Isn't that a conflict of interest?"

Jeffrey Clay, Public School Employees' Retirement System: "No, it's not a conflict of interest because, again, it's in the contract, so it's openly disclosed. The individuals that travel to the meeting are not being directly paid by these managers."

Sen. Jane Orie, R-McCandless: "On its face, it clearly is a conflict of interest. There's an appearance of impropriety that, that connection, they're getting gifts in order to sustain them having business with the state."

Last year, pension fund employees traveled to all corners of the globe. In addition to London, Paris and Monte Carlo, they also went to Berlin, Tel Aviv, Hong Kong, Shanghai, Singapore, Buenos Aires, Rio de Janeiro and Sao Paulo, not to mention beach resorts in Florida and California and ski resorts in Colorado and Utah.

All this, in a year when the two pension funds lost nearly 30 percent of their value -- $28 billion.

Van Osdol: "You guys were down 29 percent last year, so what good did all these meetings do?"

Clay: "That may be true, but that's a reflection of the market. Everybody's been down."

Even if you're not a teacher or a state employee, if you're a taxpayer, you have plenty of reason to be concerned about the pension funds. That's because they're facing a $2 billion shortfall in just the next few years -- money that may have to be covered by taxpayers.

In just the Pine-Richland School District, annual pension costs will rise by $6 million -- the cost of about 100 teachers.

Pension board officials and critics agree that makes it even more critical that they keep a close watch on their investments, but they disagree on how to do it.

Gentzel: "These are not junkets. These are business trips."

Orie: "These luxury retreats and junkets have to stop."

To avoid trips to lavish resorts, Orie says the pension funds should start doing more video conferencing.

Even though the market plunged last year, the money managers who paid for all those trips did pretty well. The two pension funds paid them a total of $700 million in fees last year.

New York's attorney general is investigating whether investment firms used improper influence to try to get business with state pension funds.

Related:
Annual budget report - State Employee Retirement System
Annual budget report - Public School Employees Retirement System