A number of state and local pension plans around the country could see changes in the near future, depending on who is elected in a number of races on Nov. 6.
Elections involving state treasurers and two gubernatorial races have the potential for the greatest impact on state pension plans as changes could be in store for North Carolina, Oregon, Indiana and Montana.
Janet Cowell, who as North Carolina treasurer serves as sole fiduciary to the $74.5 billion North Carolina Retirement Systems, Raleigh, is opposed in her re-election bid by Republican Steve Royal, who wants to increase oversight of external money managers and find ways to reduce management fees.
Ms. Cowell is seeking lead-plaintiff status in a lawsuit against the underwriters of Facebook Inc.'s May initial public offering to lend a “strong voice” on poor corporate governance practices at technology companies. Mr. Royal questions why a long-term public investor would choose to make investments in technology-based IPOs, which have not performed well in the past few years.
Mr. Royal, a certified public accountant who runs his own business, said in a telephone interview he wants a full independent audit of the pension system to ensure assets are being managed appropriately and with the lowest fees possible.
“We don't need to be trusting Wall Street ... we don't need to do all this out of house,” Mr. Royal said.
While the retirement system paid nearly $300 million in fees last fiscal year, investment fees were 39 basis points of total assets, which was about the median for the public pension industry, Ms. Cowell said, and is a slight drop from the system's 2009 levels of nearly 41 basis points.
About 65% of the defined benefit plan is managed externally, said Julia Vail, spokeswoman for Ms. Cowell.
Any changes to investment policy would need approval from the General Assembly and Ms. Cowell said she will request to shift money out of fixed income into opportunistic and distressed credit. The system had a 94% funded status, in large part because of its high fixed-income allocation, but she said the “math doesn't work” anymore with low interest rates. She is also looking to build on the real assets portfolio and said she would request the ability to do more internal management of assets.
Mr. Royal would like to see more internally managed portfolios as well, and more investments related to businesses in the state. He also said an increase in investments in alternatives only leads to greater risk and higher fees.
Mr. Royal said if the downward trajectory of the pension system's funded status does not improve, he could see a movement to a defined contribution plan. Ms. Cowell said the DB system has worked well and the creation of a DC plan would create greater costs to the state for the next decade.
The retirement system was 96% funded as of Dec. 31, 2009, 106% at the end of 2006 and 108.4% at the end of 2002.