Bonuses for SC pension fund managers raise eyebrows

10/09/2013 8:06 PM

03/14/2015 7:15 AM

Some state lawmakers say the Legislature should take a fresh look at the compensation system used for investment managers of the state’s $27 billion pension fund after 14 staffers were recently awarded $1.4 million in bonuses.

State Treasurer Curtis Loftis, who sits on the state Retirement System Investment Commission, called the bonuses, which ranged from $30,000 to $300,000, “outrageous.”

He wants lawmakers to review the compensation system because he said it doesn’t require high enough performance of the fund in comparison to other large public pension funds.

Reynolds Williams, chairman of the commission, which has long been at odds with Loftis, said Loftis voted for the current compensation system which ties total compensation to the 90th percentile of public plans.

Willliams said how South Carolina’s fund performs relative to other state’s pension funds is “irrelevant” because “every state has its own unique conditions.”

“RSIC investment professionals contributed nearly half a billion extra dollars to the Retirement Fund through their active management in the past fiscal year,” Williams said. “We believe that $1.4 million is a small price to pay for that kind of return.”

The agency reported that its net return for the year ending June 30 was 9.99 percent. Loftis said the top performing large public plan reported a return of 20 percent.

“This is a perverse incentive,” Loftis said of the compensation system. “It does not incentivize higher performance.”

The Senate last year reviewed the Investment Commission’s compensation and approved it, but several senators told The Greenville News that they would support taking a fresh look.

“That’s a lot of money going out there and it wouldn’t hurt to look at it at all,” said Sen. Kevin Bryant of Anderson, a member of the Senate Finance Committee.

Sen. Nikki Setzler of West Columbia, a member of the Senate Finance Committee who chairs a Senate pension fund panel, agrees the plan should be reviewed.

“We need to be looking at that to see what is being done there in relationship to the overall performance of the funds and the money they invest across the board,” he said.

Setzler said he wants to see a breakdown of each staff member’s bonuses and job.

Sen. Thomas Alexander of Walhalla, a former co-chair of the Senate pension fund subcommittee, said a review of the plan would be healthy.

“I think from the testimony we’ve heard in the past that you have to be competitive in that arena,” he said.

“I think we all want to make sure that bonuses are paid on a system that is to the benefit of the investments and the performance, but at the same time we have to be competitive to get the right type of folks in to manage it.”

Rep. Jim Merrill, a Berkeley County Republican who chaired a House pension fund committee and also chairs the budget subcommittee with oversight of the Investment Commission, said while a proviso originally required the commission to bring its incentive plan to the House and Senate, the commission officials told him that they were still working on a plan and would return before implementing it.

He said they didn’t.

He said he told them that he had numerous problems with the plan.

“I think these guys just reverted back to the previous plan, that had only been seen by the Senate and I think it’s absolutely outlandish,” he said.

Merrill said the Legislature needs to find out if the commission is doing its job appropriately. “Many folks are trying to structure it like an outside investment firm and it’s not,” he said.

“It’s a public agency. Which leads me to question the idea of bonus compensation. Most agencies don’t have the opportunity for that. Maybe it should be implemented but I’m just not sure that we have vetted this to its fullest extent.”

Loftis said he worked on a commission subcommittee to improve the previous compensation plan, which he rated as a zero on a scale of 1 to 100.

He said the current compensation plan is much better but still needs improving. He said he has voted against bonuses each year since.

“It would have been foolish not to improve the plan while we could,” he said of his vote.

“I’ve asked the General Assembly to revisit the plan, and I’ve asked the commission and the commission is going to revisit the plan this spring.”

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