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  2. Special Report: Elections 2020
October 05, 2020 12:00 AM

State treasurer races to determine future of retirement offerings

Brian Croce
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    Oregon Treasurer candidates
    Photo: Ciara Cusseaux (Read)
    State Treasurer Tobias Read, left, who was responsible for the creation of OregonSaves, wants to establish an emergency fund for participants. Challenger Jeff Gudman will have a ‘relentless focus’ on the program’s fees; he also will look at funding issues within the Oregon Public Employees fund.

    While most of the attention come Nov. 3 will be focused on the presidential election, there are several state treasurer races that will impact state pension systems and the retirements of millions of Americans.

    Voters in four states — Oregon, Pennsylvania, North Carolina and Vermont — in particular will decide whether to re-elect their incumbent state treasurers. Within these races are candidates floating bold ideas, such as adopting a state-backed automatic individual retirement account program or switching to defined contribution plans for new employees. At the same time, voters will weigh in on gubernatorial elections in 11 states and, in California, a constitutional amendment to change the way larger commercial and industrial properties are taxed.

    Here's a look at the treasurer races to watch:

    Oregon

    In Oregon, incumbent Democrat Tobias Read is seeking his second term as treasurer after his election in 2016. He is running against Jeff Gudman, a Republican who has completed two terms on the Lake Oswego City Council and has worked as a financial analyst for a manufacturing company and treasurer for several subsidiaries of NW Natural Gas, as well as Michael P. Marsh, who's running on the Constitution Party line, and Chris Henry, an independent running on the Pacific Green Party and Progressive Party lines.

    In his first term, Mr. Read, who previously served in the Oregon House of Representatives, spearheaded the implementation of Oregon Retirement Savings Plan, the nation's first state-sponsored private-sector retirement program known as OregonSaves, which launched in 2017. As of Sept. 11, the program had more than 73,000 people with funded accounts and $67.1 million in assets, according to Mr. Read.

    "We've seen the popularity grow over time and we've worked really hard to make it the lightest possible touch for employers and the most positive experience for individual savers," Mr. Read said in an interview. "That rollout has been really important in establishing its stability and reputation."

    OregonSaves has three investment options: a capital preservation fund, an S&P 500 index offering and a suite of target-date funds. If he's re-elected, Mr. Read said he'd like to have a discussion as to whether the capital preservation fund, which is the default fund for savers' first $1,000, can be used as a more "true emergency fund" that is tied to a saver's expenses. "There are a bunch of things where we're learning from peoples' real life experiences that could inform how we make it even more relevant and meaningful in peoples' experiences," he said.

    Mr. Gudman said in a statement that if elected he would have a "relentless focus on costs of administering the (OregonSaves) program. A modest change is the presentation of basic financial statements at the board meetings, which does not happen currently."

    One of Mr. Gudman's other focuses would be addressing the unfunded liability of the public retirement system. The state's largest fund, the $74.1 billion Oregon Public Employees Retirement Fund, Salem, had a funded status of 69% at the end of 2018, according to board documents from January.

    Mr. Gudman said he will utilize his 40-plus years in finance to tackle the funding issues and will provide more transparency around Oregon Investment Council decisions, like setting its policy guideline for the OPERS' projected rate of return, which then has to be approved by the OPERS board of trustees, he explained.

    "When you understand that assuming a lower policy rate of return will have a far bigger impact on OPERS than, say, a decrease in lottery fund revenue will have on debt capacity, then you apply real world finance to a real world problem," he said.

    The state treasurer has a seat on the Oregon Investment Council, Tigard, which oversees the investment and allocation of all the state's trust funds. Mr. Read said the council had been preparing for a disruption in the market in recent years by derisking its portfolio, which put it in a much better position to weather the COVID-19 pandemic.

    "We're not completely isolated from the world, nor should we be, but I think we are more resilient and we have a significant advantage, as do most pensions, in that our mandates are really long term," Mr. Read said.

    Pennsylvania

    Pennsylvania Treasurer Joe Torsella, a Democrat, is also seeking a second term and is in a four-way race with Stacy Garrity, a Republican; Timothy Runkle, on behalf of the Green Party; and Joseph Soloski, of the Libertarian Party.

    Mr. Torsella, who served as the U.S. representative to the United Nations for budget and management reform from 2011-2014, would like Pennsylvania to create its own state-backed auto IRA program for private-sector workers. If re-elected, he said on his campaign website that he would work with other stakeholders and leaders across the political spectrum to develop the Pennsylvania program, based on best practices and the most recent experience in other states.

    In light of the recent economic downturn, Mr. Torsella said in a statement that the state is now seeing the "terrible impact it has when folks have insufficient savings to fall back on" and that establishing an auto IRA program should be one of the ways Pennsylvania public officials help their constituents.

    "Moving forward, we know we're going to have many people changing jobs and heading back to work, as we make our way through this crisis," Mr. Torsella said. "Now is the time to make sure we meet them with plans that help Pennsylvanians build a more secure and stable future."

    Separately, in August, the $55.8 billion Pennsylvania Public School Employees' Retirement System, Harrisburg, eliminated its risk-parity allocation. The move was supported by Mr. Torsella, who said in a news release: "It's time that more pension funds wake up to the fact that Wall Street has, in many cases, sold them something close to modern-day snake oil."

    The Pennsylvania treasurer or his designee serves on approximately 20 boards, including the one overseeing PennPSERS.

    Ms. Garrity, a retired U.S. Army Reserve colonel, said in a statement that tackling the unfunded liabilities weighing on the state pension system would be one of her top priorities. "The pension system has been plagued by inexcusable mismanagement and secret fees that hurt our retirees," she said. "One priority will be cleaning up the treasurer's office, making all investments transparent and giving retirees greater access and information about how their money is being invested."

    She would like to make it easier for all Pennsylvanians to invest "in low-fee, low-tax retirement accounts that are fully portable and controlled by individuals — not the government," while also educating citizens on the importance of saving and investing. She said she would propose a financial curriculum for Pennsylvania schools to help younger generations prepare for their futures.

    North Carolina

    Republican Dale R. Folwell is seeking a second term as treasurer and sole trustee of the $107.3 billion North Carolina Retirement Systems, Raleigh. He is opposed by Democrat Ronnie Chatterji, an economist and professor at Duke University's Fuqua School of Business and Sanford School of Public Policy.

    In 2017, during his first term in office, Mr. Folwell, a former member of the state's House of Representatives, announced the first internally managed passive index fund for the retirement system with the goal of reducing fees paid to outside investment managers while maintaining performance. In the second quarter, the system's $11.6 billion in passive assets netted a 20.8% return.

    As a whole, the system had gains of 6.38% for the second quarter. "A 6.38% return during one of the most volatile markets I've ever seen is a testament to the great work done here by our investment management team," said Mr. Folwell in a news release. "We've maintained the conservative investment strategies of previous state treasurers, allowing us to minimize losses during the down market, and to also see substantial gains when the market rebounded. We don't have a crystal ball and we don't gamble with the money of those who teach, protect and otherwise serve the people of North Carolina."

    Mr. Folwell could not be reach for further comment.

    Mr. Chatterji, who served as a senior economist on the White House Council of Economic Advisers during the Obama administration, said in a statement that management of the state pension fund has "gone backwards" in the last four years.

    If elected, Mr. Chatterji said he would hire a "world-class (chief investment officer) with the right experience to lead our investment team. I might have a Ph.D. and relevant experience, but I would rely on a skilled team of professionals to advise me in managing" the fund. Moreover, he would align the system's asset allocation with its investments policy and then "conduct a review to determine if we need to make changes to our investment policy going forward."

    The state retirement system had been without a permanent CIO since Kevin SigRist resigned in 2017, with Christopher Morris and Jeff Smith serving as interim co-CIOs. However, shortly before press time, Messrs. Morris and Smith were named permanent co-CIOs.

    Mr. Chatterji said he would also estimate and manage the risk climate change poses to the system. "I believe climate change is real and that ESG factors can be informative for investment decisions," he said. "I also would be a voice on behalf of investors to ensure that the companies we invest in are effectively managing climate-related risks and disclosing pertinent information about their operations."

    Vermont

    In Vermont, Treasurer Elizabeth Pearce, a Democrat, is seeking her fourth term in office and is running against two challengers: Republican Carolyn Whitney Branagan and Cris Ericson of the Vermont Progressive Party.

    Ms. Pearce, who has held the state treasurer position since 2011, said in an interview that the $4.6 billion Vermont State Retirement Systems is in good shape despite the year's market turmoil, largely because of proactive decision to mitigate downside risks in recent years. As treasurer, Ms. Pearce is one of seven people on the Vermont Pension Investment Committee, which acts as the trustee for the defined benefit plan investments.

    In order to tackle funding issues in the Vermont State Retirement Systems, Ms. Branagan said reforms are needed. In a video posted on her campaign website, she said a discussion is needed on five ideas first introduced by the Vermont Business Roundtable in a January report. The ideas include improving transparency and conducting annual stress tests, but most notably, shifting new employees out of defined benefit plans and into defined contribution plans. Ms. Branagan would like to establish a team to come up with "a system that we can afford," adding that the team would be devoid of politics.

    "The defined benefit style of building a retirement system is old-fashioned, it doesn't work anymore," she said. "So we need to come up with an alternative, a more modern way of building retirement."

    But Ms. Pearce said continuing to offer a defined benefit plan for new employees is the best course for the state and its employees. "Defined benefit plans, when they provide adequate dollars in retirement, are an economic generator because they result in folks buying goods and services and that creates more jobs," she said. They also "provide the best benefit for those employees and facilitate better recruitment and longevity of our employees."

    Separately, Ms. Pearce is focused on launching the Green Mountain Secure Retirement Plan, Montpelier, Vt., a voluntary open multiple employer plan for employers with 50 employees or fewer that do not currently offer a retirement plan. The Green Mountain plan was signed into law in 2017 and Ms. Pearce said a "test group" of employers will be enrolled in the plan shortly, though a timeline could not be provided.

    Prop 15

    In California, voters will decide whether to add a constitutional amendment to require that larger commercial and industrial properties be taxed based on their market value, rather than purchase price.

    The proposition would raise property taxes on commercial properties worth more than $3 million, providing $6.5 billion to $11.5 billion in new funding to local governments and schools, according to the state's official voter information guide.

    Proposition 15 — as the measure will appear on the ballot — could reshape the California commercial real estate market, Jonathan Woloshin, UBS Global Wealth Management's head of U.S. real estate, said in a statement.

    "Should Prop 15 pass and lead to dislocation for a portion of California's commercial real estate sector, it could lead to investment opportunities for well capitalized opportunistic investors," he said. "Given the significant amount of opportunistic dry powder sitting on the sidelines, downside to values could potentially be limited if opportunistic capital were to step in."

    Gubernatorial races

    There are also 11 states with gubernatorial elections this fall, though no candidates in any major party are proposing major shakeups to state pension systems.

    But Bridget Early, executive director of the National Public Pension Coalition in Washington, said that although most pension systems have recovered from the market volatility earlier this year, state and local budgets cannot say the same. As governors grapple with managing their respective COVID-19 responses, states are faced with increases in costs from unemployment insurance and a reduction in tax revenues, Ms. Early noted in an email.

    "While many of the pension funds' investment portfolios recovered from the spring crisis, policymakers still need to practice funding discipline," Ms. Early said. "If they don't, they could harm their state's credit rating, increasing the state's costs for other projects."

    She added, "This is a moment when we need our policymakers to be brave, just as our essential public employees have been these past six months."

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