WASHINGTON - The downsizing of the $4.5 billion District of Columbia Retirement Board is being delayed until early 1998, under an agreement between officials from the Treasury Department and the district government expected Sept. 29.
The Treasury Department is expected to let the pension fund's staff control the entire $4.5 billion until it is ready to take over the bulk of the assets, said a senior Clinton administration who requested anonymity. So, pension fund officials can postpone, until then, a possible liquidation of the assets scheduled to be transferred to the federal government. That could be as much as $3.2 billion.
The agreement also is expected to let the fund keep its investment strategy intact.
But the department is expected to ask the fund to refrain from investing any additional money in real estate and alternative investments, because those cannot be liquidated easily.
Sole trustee to be appointed
The Clinton administration official said the federal government will not take over the assets until Treasury Department officials have appointed a sole trustee to oversee the money, as directed by the District of Columbia Retirement Protection Act of 1997.
A search for the sole trustee has not yet begun, the official said.
In the meanwhile, DC lawmakers last week approved a temporary "wrap-around" pension plan. This smaller plan will pay future retirement benefits of the city's current police officers, teachers and firefighters, as well as workers hired after July 1, 1997.
The new plan simply extends the current defined benefit plan structure, and the three different contribution rates and retirement age requirements, said Artie Blitzstein, city budget director.
A more permanent replacement plan, possibly with changes in contribution rates and retirement ages, will be considered later in the fall, Mr. Blitzstein said.
The new plan will have about $1.275 billion, once the other assets are transferred to the federal government.
Also postponed until later this year are plans to shrink the size of the board to seven trustees from 13, cut staffing by almost half, and cut the pension fund's budget, Mr. Blitzstein said.
"In the short run, we went with what we could agree on," he said.
Under the law, the federal government will assume the assets - and a $4.8 billion unfunded liability - that accrued until June 30.
Oct. 1 deadline
DC lawmakers were required to adopt the replacement plan by Oct. 1, when the law becomes effective, and the federal government stops making contributions to the pension fund.
Meanwhile, the agreement between the Treasury Department and district officials clears the way for the retirement board to proceed with rebalancing its assets on a quarterly basis.
Separately, the pension fund's trustees placed two managers on the watch list for two quarters, and removed two others from the watch list.
Placed on watch for performance-related reasons were LM Capital Management Inc., La Jolla, Calif., which manages a $24 million active strategic fixed-income portfolio, and Sturdivant & Co. Inc., Clementon, N.J., which manages $40 million in a large-cap value portfolio.
Trustees also decided to change LM Capital's benchmark from the Lehman Brothers Aggregate Index to the Lehman Brothers Government Corporate Index.
John Chalker, managing director at LM Capital, said the new index is a more appropriate benchmark because the firm doesnot use mortgage-backed securities. "If you measure our past performance against the (new index) we have outperformed, and we expect to show above average performance against this new benchmark in the next two quarters, and then return to regular manager status," he explained.
Albert A. Sturdivant, chairman and chief investment officer of the firm bearing his name, did not return calls seeking comment.
Removed from the watch list were Woodford Gayed Management Inc., Los Altos, Calif., which manages $26 million in a large-cap growth style, and GW Capital Inc., Bellevue, Wash., which manages $26 million in a midcap growth style.
The fund's trustees also decided to keep RogersCasey & Associates, Darien, Conn., the fund's consultant, on the watch list for another six months because of personnel turnover. Following the six months, trustees will decide whether to search for a new consultant.
Meanwhile, Sheila Morgan-Johnson, deputy director of finance for the pension fund, has begun discussions with State Street Bank & Trust Co., Boston, the pension fund's custodian, about separating employee contributions received after June 30, when the district government became responsible for paying future benefits for current workers under the new law.