Ohio public plan directors taking aim at legislation

COLUMBUS, Ohio — The executive directors of the five Ohio state retirement systems, whose combined assets total $115 billion, sent joint letters Nov. 20 to Gov. Bob Taft and legislative leaders opposing parts of a bill approved by the state House.

Specifically, the executive directors of the Ohio Public Employees Retirement System, Highway Patrol Retirement System, Police and Fire Pension Fund, State Teachers Retirement System and School Employees Retirement System opposed sections of HB 227 that would impose investment and trading mandates on the funds; appoint the state treasurer to the boards of all five systems; and give the treasurer the power to hire and fire the executive directors of all five state retirement systems, with consent of the respective boards.

In their letters, the five retirement officials wrote that restricting investment authority to in-state firms could cost the systems an estimated $180 million.

They also said giving the treasurer the power to hire and fire executive directors "would disrupt the checks and balances that exist in the current board structure by concentrating too much power with one person, especially for the investment of retirement funds. Furthermore, empowering the state's treasurer with these appointment responsibilities impedes board members' fiduciary duty."

The treasurer, who doesn't sit on the boards now, would replace the attorney general.

The earliest HB 227, which passed the Ohio House of Representatives by an 80-13 vote on Nov. 13, can be considered for a committee assignment by the state Senate is in December, said Maggie Mitchell, spokeswoman for the Senate Republican Caucus. The General Assembly session ends year-end 2004.

A pension reform bill also passed the Senate the same day. SB 133, approved 27-6, would restructure oversight and ethical standards of the state retirement systems, similar to the House bill. But the Senate bill does not contain any investment or brokerage mandate, nor does it give appointment powers to the state treasurer.

Senate President Doug White and House Speaker Larry Householder "haven't discussed how the bills would be reconciled," Ms. Mitchell said.

HB 227 would require at least 50% of externally managed investments and 70% of equity and fixed-income trading to be handled by in-state firms. It would also require the systems to use in-state minority managers for an additional 10% of the externally managed assets and 10% of trading.

Officials at Banc One Investment Advisors Corp., Columbus — the largest money manager based in Ohio with assets under management of $142 billion — declined to comment, said Julie Crothers, director of public relations for asset management.

At Victory Capital Management Inc., Cleveland, which has $72 billion in assets under management, Ron Petrie, vice president-public affairs, said its officials have no comment, adding, "We're going to stay out of a political issue." Officials at Fifth Third Bancorp, Cincinnati, which has $13 billion in assets under management, didn't get back with comment.

Ms. Mitchell said Mr. White favors separating the investment and brokerage mandates into a separate bill from the oversight and ethical issues; she isn't sure whether he would favor such mandates.

State Sen. Lynn R. Wachtmann, sponsor of SB 133, also favors breaking out the investment and brokerage mandates into a separate bill, said Bethany Rhodes, an aide to the senator. She added Ms. Wachtmann isn't sure if he would support the House bill's investment restrictions.

"The governor believes that qualified potential Ohio managers should have the opportunity to compete for business," said Orest Holubec, press secretary for Mr. Taft. "But whether it should be mandated is something he is still considering."

State Treasurer Joseph T. Deters isn't in favor of the mandates, said Lisa Peterson, an aide.

Both the Senate and the House bills name the state treasurer to the boards of the state retirement systems; only the House bill gives him the authority to hire and fire executive directors of all five systems with consent of the boards, a power he demanded in testimony before a House committee hearing and in a letter to Rep. Michelle G. Schneider, sponsor of HB 227.

Mr. Deters, in testimony to a House committee, said giving him extra powers as a board member would aid accountability.

"Under the current construction, the power of the board is diffused to as many as nine separate members," Mr. Deters testified. "The level of accountability is minimal at best."

The "statewide elected treasurer would be ultimately accountable to the people of the state for the behavior of these critical organizations," he testified.

Neil Toth is director-investments for the Ohio Public Employees Retirement System, Columbus, which has $55 billion in assets, including $22 billion managed externally. In testimony before the House committee about the bill, he said the investment management restrictions would cost OPERS $40 million to $100 million annually. The cost of complying with the trading provisions would cost OPERS $20 million to $40 million a year.