The Political Bridge

AFSCME Report Recommends Best Practices for Public Pension Plans

Among the report's findings are the following positions on ethics for member of state retirement systems:

· Prohibition on Insider Trading

· State and/or Local Conflict of Interest Laws

· Avoidance of Appearance of Nepotism

· Limitation on Receipt of Gifts

· No-Contact Policy

· Disclosure of Communications

· Prohibition on Campaign Contributions

· (Pay-to-Play)

· Disclosure of Third-Party Relationships and Payments; Permanent Ban on Current or Former Board Members or Employees from Providing Placement Agent Services in Connection with the System

 

To read the report Download AFSCME-report-pension-best-practices

Kiplinger’s November Newsletter: State Pension Plans will Remain Underfunded for Years to Come

State pension plans lost $800 billion in last year stock market decline. Even if the funds were able to earn a much greater return on their investments than expected in coming years, a typical state's plan would still wind up about 50% underfunded after 15 years.

 

New hires will bear the brunt of cost cutting.  Already this year, lawmakers in Texas and Nev. have increased age and service requirements for retirement

 

Securities Exchange Commission Proposes Measures to Curtail "Pay to Play" Practices with Public Pension Funds

FOR IMMEDIATE RELEASE
2009-168

 

 

Washington, D.C., July 22, 2009 — The Securities and Exchange Commission today voted unanimously to propose measures intended to curtail "pay to play" practices by investment advisers that seek to manage money for state and local governments. The measures are designed to prevent an adviser from making political contributions or hidden payments to influence their selection by government officials.

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Additional Materials

   Proposed Rule Release No. IA-2910

 

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The proposals relate to money managed by state and local governments under important public programs. Such programs include public pension plans that pay retirement benefits to government employees, retirement plans in which teachers and other government employees can invest money for their retirement, and 529 plans that allow families to invest money for college.

To help manage this money, state and local governments often hire outside investment advisers who may directly manage this money and provide advice about which investments they should make. In return for their advice, the investment advisers typically charge fees that come out of the assets of the pension funds for which the advice is provided. If the advisers manage mutual funds or other investments that are options in a plan, the advisers receive fees from the money in those investments.

Investment advisers are often selected by one or more trustees who are appointed by elected officials. While such a selection process is common, fairness can be undermined if advisers seeking to do business with state and local governments make political contributions to elected officials or candidates, hoping to influence the selection process.

The selection process also can be undermined if elected officials or their associates ask advisers for political contributions or otherwise make it understood that only advisers who make contributions will be considered for selection. Hence the term "pay to play." Advisers and government officials who engage in pay to play practices may try to hide the true purpose of contributions or payments.

"Pay to play practices can result in public plans and their beneficiaries receiving sub-par advisory services at inflated prices," said SEC Chairman Mary Schapiro. "Our proposal would significantly curtail the corrupting and distortive influence of pay to play practices."

Andrew J. Donohue, Director of the SEC's Division of Investment Management, added, "Pay to play serves the interests of advisers to public pension plans rather than the interests of the millions of pension plan beneficiaries who rely on their advice. The rule we are proposing today would help ensure that advisory contracts are awarded on professional competence, not political influence."

The rule being proposed for public comment by the SEC includes prohibitions intended to capture not only direct political contributions by advisers, but other ways advisers may engage in pay to play arrangements.

Restricting Political Contributions

Under the proposed rule, an investment adviser who makes a political contribution to an elected official in a position to influence the selection of the adviser would be barred for two years from providing advisory services for compensation, either directly or through a fund.

The rule would apply to the investment adviser as well as certain executives and employees of the adviser. Additionally, the rule would apply to political incumbents as well as candidates for a position that can influence the selection of an adviser.

There is a de minimis provision that permits an executive or employee to make contributions of up to $250 per election per candidate if the contributor is entitled to vote for the candidate.

Banning Solicitation of Contributions

The proposed rule also would prohibit an adviser and certain of its executives and employees from coordinating, or asking another person or political action committee (PAC) to:

1. Make a contribution to an elected official (or candidate for the official's position) who can influence the selection of the adviser.
2. Make a payment to a political party of the state or locality where the adviser is seeking to provide advisory services to the government.

Banning Third-Party Solicitors

The proposed rule also would prohibit an adviser and certain of its executives and employees from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser.

Restricting Indirect Contributions and Solicitations

Finally, the proposed rule would prohibit an adviser and certain of its executives and employees from engaging in pay to play conduct indirectly, such as by directing or funding contributions through third parties such as spouses, lawyers or companies affiliated with the adviser, if that conduct would violate the rule if the adviser did it directly. This provision would prevent advisers from circumventing the rule by directing or funding contributions through third parties.

http://www.sec.gov/news/press/2009/2009-168.htm

 

 

The Kentucky Retirement Systems Makes First Hedge Fund Move with Arrowhawk Capital Partners's First Hedge-Fund Plan

Pensions and Investments: October 1, 2009

 Kentucky Retirement Systems, Frankfort, will invest up to $200 million in a direct investment in Arrowhawk Capital Partners’s first hedge fund, Durable Alpha, which launched Sept. 1.

The hedge fund investment is the first for the $12 billion system.

Funding comes from a 5% target allocation to absolute-return strategies approved by KRS’ investment committee in February, CIO Adam Tosh said in an interview.

The Arrowhawk Durable Alpha Fund is a core, risk-controlled, multistrategy hedge fund open to institutional investors and sovereign wealth funds.

Draining The Public-Pension Swamp: Scandal in California

From Forbes Magazine

Wednesday, the California Public Employees' Retirement System disclosed that it is launching an investigation into evidence that a former board member has snagged $50 million in fees for funneling money from the fund to poorly performing outside managers.

To those of us in or close to the public pension fund business, this news comes as little surprise. But here's hoping it will finally force other public funds around the country to do something most have been avoiding: clean house.

Recent Shenanigans with the Elections of Board Members to the Kentucky Retirement System (KRS) Might Have Calamitous Results for Pubic Employees

(This is the second of two related articles on major problems with the Kentucky Retirement System--KRS)

The potential problems with the current KRS election process (as documented in the letter from the union leader) have recently surfaced. These problems have left public employees poorly represented on the KRS Board.

KRS has nine board members. The Governor appoints four board members, who represent the State’s interests.  The other five board members are support to represent the interests of public employees (two for State Employees, two for County and City Employees and one for State Police.)    Currently up for election in 09-10 are the two state slots. One slot is vacant from a resignation and the other is held by a 12 year incumbent Bobby Henson who is retired management from Transportation.  The two County slots are filled by Association executives not public employees.

House Bill 1, “An Act relating to retirement and declaring an emergency,” became effective on June 27, 2008.  Section 21 of that bill amended KRS 61.645(3) to shorten the term limits for elected trustees of the Kentucky Retirement Systems from five to three consecutive terms.   

Those who follow KRS proceedings (including the 22 prospective candidates and many trustees) took the law on face value. They assumed that there would be two open seats. Bobby Henson (who has served three terms) would not be eligible to run again.  A day before the August Board meeting, Executive Director Burnside alerted the board on August 19 that he had obtained an opinion from Attorney General Conway’s Office (OAG09-006) that would allow Henson to run for another term. Henson would then be able to serve 20 years on the KRS Board.  The Attorney General’s opinion also affords the Board’s Chair (a retired State Policeman) and the County Representatives (the Executive Director of the County Judges association) the possibility to serve twenty years on the KRS Board).  The Attorney-General’s last-minute opinion concerning KRS elections has enabled three members of the board to serve on it for twenty years, which clearly violates the spirit if not the letter of HB 1.

At the August 20 Board meeting, the “table was set “just like the letter posted on this site previously predicted.  There was no discussion of the merits of the 22 candidates, as a deal was pre-cut for the six slots which quietly passed the board almost without notice.    Of course, Henson was on the slate and other friends of board members but there was one candidate with a pro-labor record Charles Wells, so there is a chance of one decent representative for non-management public employees.

Trustees with management backgrounds and especially Association Executives would not to be he best representatives for rank and file employees.  KRS Chief Operating Officer came from the Kentucky League of Cities where according to the H-L he designed a lavish retirement package for Sylvia Lovely and himself.  http://www.kentucky.com/klc/story/820331.html.    KLC has had a long history of involvement in KRS elections as in 2004 when then KLC employee Thielen obtained a ethics ruling to use private KLC funds to run a campaign for a KRS board seat.

The aforementioned opinion of the Attorney General (which, in essence, nullified HB1) will thus have several detrimental effects upon the KRS.  The board’s old guard will probably be in control for years to come. This old guard would most likely resistant any changes in the KRS and many are needed.  In addition,  there will be few, if any seats, on this board for new members that would represent the best interests of Kentucky’s  hard-working public employees.

A Letter from a Senior Union Leader on Potential Problems with the KY Retirement System’s Election Process

(This is the first of two related articles on major problems with the Kentucky Retirement  System.) 

June 6, 2009

Anon: 

Per your request, I have checked out the KY Retirement Systems election process. It is bizarre.

These regulations(which are set by State statue) gives the Board incredible discretion as to who serves, and they can easily set the table regarding who they want their buddies' opponents to be, can actually pick unqualified opponents. And the bar to petition to get on is high--getting 1,461 qualified signatures is a big task, though one I am sure the Gov's folks could reach--but involves a concerted effort. 

 In New Mexico, you need 100 signatures to get on, and they take the top 5 signature gatherers--and ballot placement is based on top signature collectors. In Kansas, all candidates getting over 100 sigs qualified--this year there were 16 candidates--a little unwieldy.

Sincerely yours,

Name withheld by request

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 Below are the governing regulations:

 Kentucky Retirement Systems

Resumes Requested for KERS Board Member Election

Request for Nominations

In early 2010, employees, inactive members and retired members of the Kentucky Employees Retirement System (KERS) will vote for two individuals to serve on the KRS Board of Trustees.

Per Kentucky Revised Statute 61.645, the Board may place three names on the ballot for each position to be filled. The Board of Trustees is requesting names of members who would be interested in running for the two KERS trustee positions.

Eligibility Requirements for KERS Trustees

To be eligible to serve as a KERS trustee, an individual must be an employee, inactive member, or retired member of KERS.

In accordance with House Bill 416, enacted by the Kentucky General Assembly on March 13, 2009, an individual who is a current or former employee of the Kentucky Retirement Systems is ineligible to run for the election. Individuals who are currently serving as an elected or appointed city, county, or district officer should also be aware of the constitutional and statutory provisions that may prevent them from simultaneously serving on the Board of Trustees. Kentucky Revised Statute 61.645 and Section 165 of the Constitution of Kentucky establish when a constitutional incompatibility may exist between a position you currently hold and membership on the KRS Board of Trustees. You may wish to contact the Attorney General’s Office for further guidance.

Submitting a Request for Nomination

If you are interested in serving on the Board, please submit a resume to the Division of Internal Audit at the retirement office no later than July 31, 2009. Please be sure to include your Social Security Number with any information you submit.

The Board of Trustees will select six names (three for each position), assuming enough resumes are received. These names will appear on the ballot to be mailed to KERS members in January 2010.

Note: Resumes received after July 31, 2009 will not be considered for nomination by the Board at the quarterly meeting in August.

Meeting for Individuals Submitting a Resume

An informational meeting will be held on August 13, 2009 at 1:30pm for all individuals who submit a resume to the Board for nomination. The purpose of the meeting will be to acquaint individuals with the election process and to review the administration of Kentucky Retirement Systems. Individual pictures will be taken at the meeting to be placed on the ballot.

Nominations by the Membership

Individuals may also be placed on the election ballot by submitting a petition from the KERS membership. Per Kentucky Revised Statute 61.645, the petition must contain the name, social security number, and signature of no less than 1/10th of the number of members voting in the last election. Based upon 2006 election results, the petition would require a minimum of 1,461 names, social security numbers, and signatures from the current KERS membership. Petitions to be included on the KERS election ballot must be submitted to the Division of Internal Audit no later than November 30, 2009.

Election Timetable

July 31, 2009 Due date for receipt of resumes for Board nomination.

Aug. 13, 2009 Informational meeting for individuals submitting a resume.

Aug. 20, 2009 Quarterly Board Meeting. The Board will nominate 3 candidates to be placed on the election ballot for each of the two KERS positions on the Board of Trustees (total of 6 nominations).

Nov. 30, 2009 Last day to file a petition to be placed on the election ballot.

Dec. 31, 2009 Ballots prepared.

Jan. 11, 2010 Ballots mailed to KERS membership.

March 1, 2010 Last day to return a ballot.

March 15, 2010 Ballots tabulated.

April 1, 2010 Winners of election begin term of office.