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August 22, 2005 01:00 AM

Florida public safety plan wants more investment freedom

Mark Bruno
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    JACKSONVILLE, Fla. — Officials at the Jacksonville Police and Fire Pension Fund want to eliminate state restrictions that prohibit hundreds of Florida's police and fire pension plans from investing in a broad range of asset classes.

    If their proposal is passed by the Florida Legislature, many of the state's police and fire funds would be able to invest entirely at the discretion of their respective boards of trustees, lifting strictures that are mandated by the state.

    In Florida, the set of investment restrictions is unique to its police and fire retirement systems, said Robert D. Klausner, principal in the Plantation, Fla.-based law firm of Klausner & Kaufman, who represents the $887 million Jacksonville plan.

    Florida cities and towns with their own police or fire departments are eligible to receive a rebate from the state on their fire and casualty insurance premium taxes. The rebates must be used in their police and fire retirement systems. When state money is pumped into a police and firefighters' defined benefit plan, it must adhere to the state's investment statutes, which have been in place for more than 50 years.

    The investment restrictions are:

    • no more than 10% of total assets in foreign securities;

    • no bonds below an "A" rating;

    • no securities that are not traded on "recognized" national stock exchanges; and

    • no alternative investments such as hedge funds or venture capital.

    ‘More global economy'

    "We live in a more global economy and investment culture now, and in light of this, we think that the state's rules are outdated and need to be updated to provide us with greater investment flexibility," said John Keane, the plan's executive director. As of April 30, 60.3% of the plan's assets were invested in equity and 33.4 % in fixed income, with the remaining assets invested in two real estate portfolios.

    The proposal that Mr. Keane is drafting — along with Mr. Klausner, the system's attorney — would specifically amend the portions of Florida law that govern how plan trustees may invest pension assets

    There are 366 police and fire plans in the state with a combined $10.4 billion in assets, according to the Florida Division of Retirement, Tallahassee. Mr. Klausner explained that not all of these plans are subject to every restriction — they can avoid most of the restrictions by placing the rebated state assets in "supplemental" pension plans, such as defined contribution plans. Also, some systems may have received individual exemptions to the statutes from the state over the years.

    However, every police and fire retirement plan that receives state money is subject to the 10% limit on international investments, Mr. Klausner said.

    Mr. Keane said he and Mr. Klausner are doing a "comprehensive rewrite" of the investment guidelines that will ultimately serve as a "uniform" investment code for the state's police and fire plans. "We will be taking it out to other state police and fire systems, as well as labor unions, for their support shortly," said Mr. Keane, adding that the proposal will be complete by Sept. 1 and could go into effect by July 2006.

    The most appealing part of the proposal is eliminating the limits on investing in international securities, Mr. Klausner said. A number of state police and fire officials say that the 10% ceiling makes it more difficult to manage a plans' overall asset allocation and investment strategies.

    "Lifting the limit on international will allow plan sponsors to avoid micromanaging portions of their portfolios," said Mr. Klausner.

    Robert Nagle, administrator of the $1.3 billion City of Miami Firefighters and Police Retirement Trust, and John Girard, trustee for the $131 million Boca Raton Police and Firefighters Retirement System, said they would support the proposal. Mr. Girard said lifting the restriction would maximize potential performance.

    If approved, Mr. Keane said, the ultimate result will be allow for greater investment diversification. However, the state's police and fire pension plans aren't likely to immediately make dramatic adjustments to their investment strategies, he said.

    That appears to be the case in states such as New Mexico, where the state Legislature in July allowed state pension plans to invest in alternatives. Robert E. Gish, director of investments for the $10.1 billion Public Employees Retirement Association of New Mexico, Santa Fe, said his plan is taking calculated steps to invest in new asset classes. "It's ultimately a function of the perceived level of risk that your board believes is appropriate for their fund," "We want the lowest risk with the greatest returns possible."

    Mr. Gish said the he expects the system and its trustees will educate itself on alternatives for the next six to nine months.

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