RALEIGH, N.C. — A movement is under way to reform the oversight of North Carolina’s $74 billion retirement system, following a media frenzy that questioned the politics and process of hiring money managers.
Officials at the State Employees Association of North Carolina, Raleigh, are drafting a proposal to bring to the Legislature that would move the system away from having the state treasurer serve as sole fiduciary, with the final say on hiring pension fund’s investment managers.
The proposal, which will be considered by the SEANC executive committee March 22, will recommend the pension fund be ultimately governed by a board, like most other public funds, said Dana Cope, executive director of the SEANC, a non-union association of 55,000 state employees and retirees.
One goal is to reduce the potential for, or appearance of, conflicts of interests, said Mr. Cope. In recent weeks, state Treasurer Richard Moore, a likely gubernatorial candidate in 2008, has been publicly criticized for accepting campaign contributions from employees of money management firms, many of which manage assets for the system.
“There’s no question, from my perspective, that the situation needs to be altered,” said Mr. Cope.
North Carolina is one of only four states that rely on sole fiduciaries to oversee state pension funds. The others are Connecticut, New York and Michigan.
Received $736,000
Since 1999, when Mr. Moore first ran for treasurer, he has reportedly received roughly $736,000 from employees of investment management firms that run a portion of the state’s retirement assets.
Forbes magazine said employees at 80 investment management firms — including 40 that currently manage state pension assets — have recently made contributions to Mr. Moore’s campaign fund. The North Carolina Retirement System has 90 external money managers.
Mr. Moore has done nothing illegal under state law by accepting these contributions, nor has he been accused of any wrongdoing. He has stated publicly that the contributions have never harmed his ability to objectively select money management firms. Plus, he disputes any claims of “pay-to-play,” or accepting contributions in exchange for preferential treatment, that have been raised.
Mr. Moore was not available for an interview, but his press officials pointed out that the state’s retirement system is one of just a handful of public plans in the U.S. that is fully funded. According to a recent report from Standard & Poor’s, North Carolina’s system has a funded ratio of 106.5%, the second highest level among the 50 states.
“While it is difficult to comment on legislation that hasn’t even been written, the treasurer welcomes an open debate on any proposal that gets the facts on the table,” said Sara Lang, spokeswoman for Mr. Moore. “Given that S&P recently ranked North Carolina’s pension fund as one of the best in the country, it might be tough convincing the state’s retirees that the fund needs to be changed.”
Mr. Moore’s press officials also said Mr. Moore has generated an additional $4.2 billion by adjusting the fund’s asset allocation when he became treasurer in 2000. At the same time, they added, North Carolina pays its outside managers an average fee of 0.257%; which is 29% lower than the average fees paid to outside managers by public funds.
SEANC does not aim to address campaign funding issues in its proposal, Mr. Cope said. He said the sole fiduciary structure is more important because it grants too much power to one individual, making the system more susceptible to conflicts than one that is trusteed by a board.
“When you are the only one making that final decision, you don’t have a buffer that ensures there is nothing improper taking place,”
