(May 14, 2014) — The North Carolina treasurer proposed several pension investment reforms but sidestepped issues regarding her role as sole fiduciary of the state’s $86 billion pension fund.
In a letter addressed to the leaders of the General Assembly, Treasurer Janet Cowell called on legislators to adopt suggestions made by a bipartisan commission she appointed to assess the current governance structure.
“Though our pension fund is one of the nation’s strongest, and our investments have performed well, the basic investment governance structure for our state has not changed since 1979,” Cowell wrote. “The commission had several unanimous recommendations that, when enacted into law, will codify many of my previous policy changes and be a significant step forward for the governance of our retirement investments.”
Cowell suggested the General Assembly pass laws enacting the following recommendations in the 2014 short session that began yesterday: beefing up the state’s existing audit by bringing a third-party firm to look over the pension plan’s financial statements; requiring the treasurer to commission an independent performance review of investment practices every four years; revamping the reporting for each retirement system’s external investment, and clarifying the public records laws concerning the pension fund. Furthermore, she also recommended giving the division greater flexibility, including the ability to decide the size of the investment staff.
However, missing from these proposals was the discussion of moving from a sole fiduciary model to a board structure.
According to the commission’s report published on April 30, the majority voted that the North Carolina retirement system would benefit from switching to a board of trustees’ model to ensure the investment program is “efficient, cost-effective, transparent, and poised for long-term growth.”
“Additionally, the commission recommends that the degree of statutory autonomy be increased with respect to personnel, operating budget, and procurement matters so that constraints by non-fiduciaries do not impair the ability to execute the fiduciary responsibilities required in the oversight of the investment program,” the report said.
However, four members, including the leader of the state senate Ralph Hise, contended that the sole trustee model has been most effective.
“It has produced solid outcomes to date, indeed landing repeatedly in the top five in the nation in the most objective return measures,” he said in the report. “So, in a sense we are truly looking to the future with this report as the present is being superbly navigated—meaning, no need to rush to a new model exists.”
Still, just a few weeks ago, Benchmark Financial Services, a third-party firm hired by SEANC, published a forensic investigation report declaring $30 billion was unaccounted for in North Carolina’s Teachers’ and State Employees’ Retirement System.
Treasurer Cowell said that because of the split in recommendations, the discussion of governance structure is likely to be postponed to the 2015 long session to begin in January 2015.
“The treasurer realizes there is a lot of work yet to do in discussing and consulting with legislators for the best governance structure for the pension fund,” Schorr Johnson, spokesperson for the treasurer, told aiCIO. “She will be actively working with the legislators to design an appropriate legislation for pension reform.”
Johnson added that the treasurer believes if the legislators decide to move ahead with the change to a board structure, Cowell will seek for a “reduction in the level of legislative oversight” as a “tradeoff for flexibility.”
“It’s going to take some time, but the treasurer is open to all options,” he said.
The State Employees Association of North Carolina (SEANC), the organization that first brought attention to problems in the state’s pension system, said the treasurer is diverting from an important issue.
“The treasurer trying to control the debate about her control over the pension system,” Toni Davis, SEANC’s communications director, told aiCIO. “Her suggestions are a fancy window dressing—she’s basically side-stepping a major policy reform contained in the report about redesigning the governance structure.”
SEANC’s Legislative Affairs Director Ardis Watkins said the organization’s next move will be to file a legislation requiring total disclosure of fees, “ending all secrecy of our state pension’s investments.”
Related Content: North Carolina Pension Faces Forensic Investigation