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Retirement Commission Continues Aggressive Growth Plan

As South Carolina lawmakers struggle with painful choices to shore up funding of the state pension system, the entity that oversees the system’s assets wants to nearly double its operating budget and hire a dozen more personnel.

In a meeting last week, the board of the S.C. Retirement System Investment Commission approved a nearly $19 million budget request for next fiscal year (2012-13), which starts July 1.

That amount would be about $8.8 million, or 87 percent, more than the Investment Commission’s budget for this year, $10.1 million.

Under its request for next year, the commission wants to hire an additional 12 full-time employees. That would bring its staff size to 47, more than twice what it was last year.

The commission’s proposed budget increase would not come out of state taxpayers’ pockets, because the investment entity does not receive general funds appropriated by the Legislature as most other state agencies do.

But the commission’s would-be budget growth is still important for state taxpayers, because the retirement system has a massive funding problem that they already are being forced to help address.

Naturally, too, the Investment Commission’s activities concern some 520,000 current or future state and local government retirees, and their beneficiaries, who have a vested interest in the retirement system.

Billions of dollars are at stake. And with that much money on the line, it might not be surprising that who gets how much in some instances has stirred up a proverbial hornet’s nest.

Salary and bonus pay for the Investment Commission’s CEO, and comparatively generous pensions for state lawmakers, are but two examples. (The Nerve reported on legislators’ sweetheart pensions in this August 2010 story.)

Rather than general funds appropriated by the Legislature, the commission’s operating budget comes from returns on an investment portfolio that helps fund the retirement system.

The commission manages the portfolio. It was valued at more than $26.2 billion at the end of June, according to the commission’s latest quarterly report.

But while the commission is not funded out of the state’s coffers, the General Assembly still must approve the investment agency’s operating budget.

In the meeting last week, commission CEO and chief investment officer Robert Borden said the roughly $8.8 million budget increase would be used mostly to improve the commission’s ability to monitor the retirement system’s portfolio of assets.

The extra money would be spent on technology and personnel to accomplish that goal, according to the commission’s draft budget proposal. “Internal staffing and resources have lagged the transition to a more complex portfolio,” it says.

The document says additional staffing is needed “in reporting, IT (information technology), and investment areas to properly administer the investment plan.”

As The Nerve reported on May 11, the commission’s staff, salaries and budget have grown steadily since the agency was created and began operating in 2005.

The commission sought a whopping $11.7 million budget increase for this fiscal year, from $5.8 million it received in fiscal 2010-11 to a requested $17.5 million for the current budget calendar.

Lawmakers didn’t go that far, but still approved $4.4 million of the increase. That put the commission at about $10.1 million this year. Among other things, the agency used the additional money to bolster its staffing level, from 23 full-time employees in 2010-11 to 35 this year.

When Borden talks about the commission’s spending plan publicly, such as testifying to legislators during budget season and addressing board members last week, he argues that there is a “right size” for the investment agency based on industry standards.

That right size is a $20 million budget and 50 to 60 employees, he says.

Commission board members seem to agree with the idea that the entity needs to grow, even one who opposed a potentially higher bonus for Borden.

“It looks reasonable and appropriate to me,” Cutis Loftis, a board member because he is state treasurer, said during the meeting last week regarding the commission’s budget request for 2012-13.

In a follow-up interview, Loftis said the commission already is spending those dollars and then some, but externally on myriad fees: brokers’ fees, lawyers’ fees, trading fees.

With the budget increase, the commission would be bringing some of that money home “and putting it on the budget here, so they can control it better,” Loftis said.

“This is all about moving jobs from Wall Street to Main Street, Columbia,” he added.

Loftis voiced decidedly opposite notes, however, about what he described in a Sept. 15 commission board meeting as a “$70,000 windfall for one day’s pay” for Borden.

This year, the board raised Borden’s yearly salary from $353,500 to $485,000. That’s an increase of $131,500, or 37.1 percent.

And it’s on top of a more than $110,000 – or 45 percent – raise Borden received in 2008-09, going from about $242,000 to $353,500.

Loftis said he did not understand that Borden’s $131,500 raise this year was effective per the final day of last fiscal year – June 30 – rather than the first day of this fiscal year – July 1 – thereby potentially increasing a bonus Borden could make for last year by $70,000.

“The retroactive aspect of this will be repugnant to the people who pay the bills,” Loftis said.

He convinced the board to reconsider the effective date pending a review of the commission’s compensation levels. The board agreed to hire an outside consultant to conduct the evaluation.

For taxpayers and stakeholders in the retirement system, though, its funding problem is a far more serious issue.

Known as an unfunded liability, an estimated gap of $17 billion exists between the retirement system’s assets on hand versus benefits promised to future retirees.

And the gap has been growing, requiring more state dollars to keep the system financially sound.

Legislators are considering a host of ways to reverse that trend. The ideas include reducing cost-of-living increases for retirees; going back to requiring 30 work years to receive full benefits rather than the current 28; and transitioning to a 401k-style plan from the present system of predetermined benefits.

Indeed, retirement system reform could be a key issue in the 2012 legislative session. But a question arises: Amid such painful choices, will political considerations related to the November elections next year undermine any meaningful change?

And what about those sweetheart legislative pensions?

Now that one will be especially interesting to watch.

Reach Ward at (803) 254-4411 or eric@thenerve.org.

State Retirement System Investment Commission