MONTPELIER, Vt. - Vermont state Treasurer Jim Douglas said he wants to reduce the number of money managers in the $535.2 million State Employees' Retirement Plan's stable, and might index portions of the fund.
The fund's eight managers are performing well and their fees are not excessive, Mr. Douglas said. It's just that the fund is trying to reduce costs and is paying a lot of high initial fees - $1.9 million in calendar year 1994.
"No manager is performing so poorly that they require summary action," he said.
Fees vary, but on average they start at 85 basis points for the first $30 million allocated to a manager; the basis points are reduced as assets increase. Most of Vermont's managers run less than $60 million for the fund, so Vermont may be paying more than necessary, Mr. Douglas said. No manager is being terminated immediately; the status of each will be determined by trustees as contracts expire.
Large-capitalization domestic stocks could be one area in which the fund could save by indexing the equities, he added.
Mr. Douglas would not say which managers might go. According to a June 30 report from the fund, the domestic equity managers are: Alliance Capital Management L.P., New York, $400,000; Baring America Asset Management, Boston, $44.3 million; Brinson Partners Inc., Chicago, $45.1 million; Delaware Investment Advisers, Philadelphia, $97.1 million; Lazard Freres Asset Management, New York, $40.3 million; and Nicholas-Applegate Capital Management, San Diego, Calif., $40.5 million.
The fund also has two fixed-income managers: Loomis, Sayles & Co. L.P., Boston, and Morgan Grenfell Asset Management, New York.
Mr. Douglas is the plan administrator for three funds: the state fund; the $625 million State Teachers Retirement System; and the $75 million Municipal Employees' Retirement System.
Reducing fees is just one part of Mr. Douglas' plan to reduce costs and make the system more efficient. No target reduction is set, but because the state has had a tough time balancing its budget for more than four years, there is an "impetus to ratchet down costs as much as possible," Mr. Douglas said.
Next on deck is to wipe the municipal employees' fund off the state's books. The state makes no contribution to the system, and while it is only 5% of the state's pension assets, it takes more than 5% of the treasury staff's time to oversee the fund.
Mr. Douglas has talked to several local leaders interested in taking over the municipal fund. The Vermont League of Cities and Towns has expressed interest and would be a good fit, because about 95% of the state's municipalities are members, he said. Mr. Douglas expects to get a bill introduced when the state Legislature reconvenes in January to transfer the assets to the local level.
And, while it might not seem like much, trustees to the state and municipal funds have agreed to hold pension-related meetings in state buildings rather than at resorts. This week, teachers' fund trustees will take up the issue.
"We're going to save thousands," Mr. Douglas said. "It's not much ...(but) it's important to make the point that we're watching costs where we can."
The treasurer needs to show that his staff is trying to lower costs because Gov. Howard Dean is after pension assets to help balance the state budget. In fiscal 1995, Vermont ended up with a $14.1 million deficit; to help offset this, Mr. Dean has decided to withhold $5 million in contributions that would have been made in fiscal year 1996 to the teachers' fund and $2 million to the state fund. Even though the governor already has decreased the amount that goes into the funds, the Legislature needs to approve it.
Mr. Douglas said he had "great sympathy" for the governor, "but I certainly don't believe the retirement funds are the place" to balance the budget.
Mr. Douglas doesn't think the Legislature would vote against the governor's actions; the state House Appropriations Committee already approved the measure, and there is a great deal of support from other state representatives.
But at the same time, in a letter written to the House Joint Fiscal Committee over the summer, Gov. Dean said this would be a one-time diversion, and contribution levels for next year would be put back on their regular schedules.
"I have expressed my opinion -that this is not the way to balance the budget - but I think that it will be very difficult to reverse this action at this point," Mr. Douglas said.