Arizona Public Safety Personnel Retirement System, Phoenix, indefinitely suspended investment staff bonuses at a board meeting Tuesday.
Brian Tobin, the president of the $7.2 billion pension fund's board, defended the investment staff at the meeting, saying staffers had been unfairly scrutinized, but stated the pension fund's costs needed to be put ahead of the personal interests of staff members.
Four investment staffers have recently resigned, contending the system inflated its rate of return for the last two years by allowing a real estate manager to set its own valuations of its investments instead of using a lower market value appraisal. For the fiscal year ended June 30, the manager, Desert Troon, valued the real estate portfolio at $82.2 million more than the $262.1 million estimated by an appraiser hired by the board, Ernst & Young, which used market values.
The higher rate of return for the latest fiscal year would have increased the bonus Chief Investment Officer Ryan Parham would have received this year to $35,000 from $10,000, by Desert Troon's valuations, according to a Pensions & Investments analysis of the system's bonus formula.
The bonus amount is determined by a formula that places the most emphasis on one-, three- and five-year historical returns.
An analysis by P&I, using preliminary data for the fiscal year ended June 30, shows that using Desert Troon's calculations the pension fund was able to boost the overall gross return to 11.48% instead of what P&I calculates would have been 10.35% if market-value figures from Ernst & Young had been used.
Investment staffers did not receive performance bonuses in the previous fiscal year because of negative returns. The system's board normally decides in September whether bonuses will be paid.
PSPRS was in the bottom quartile of returns among public pension funds with assets of more than $1 billion for the one-, three- and five-year periods ended June 30, according to Wilshire Trust Universe Comparison Service, regardless of whether the investment value or the market value of the Desert Troon portfolio was used. Its funding ratio was 58.6% as of June 30, 2012.
Doug Cole, a spokesman for the pension system, said in an e-mail that the decision by the pension board suspends bonus payments not only for this year but indefinitely.
Mr. Cole and system administrator James Hacking have previously defended allowing Desert Troon to set its own real state valuations saying it was in line with standard financial reporting requirements.