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Kentucky pension funds push back against fee disclosure bill
February 23, 2016 / 5:21 PM / 2 years ago

Kentucky pension funds push back against fee disclosure bill

An elderly couple sits on a bench on the peak of Mount Hochwacht (988 metres/3241 ft) as high fog covers the landscape around the Swiss town of Zug in this file photo dated November 20, 2012. Reuters/Arnd Wiegmann

NEW YORK (Reuters) - Kentucky’s troubled public pension funds are fighting a bill requiring them to disclose performance fees paid to outside asset managers and use more transparent methods when selecting those managers.

Both the Kentucky Teachers Retirement System (KTRS) and the Kentucky Retirement System (KRS) have lobbied against the bill, which has been passed by the state Senate. They argue more disclosure and additional conditions could slow down the investment process, deter outside fund managers from doing business, and leave the funds at a disadvantage.

The bill also stipulates that advisors doing business with the state pension funds would need to adhere to a strict code of conduct, requiring them to disclose potential conflicts of interests such as referral fees paid by third parties.

Transparency is becoming a major issue in the severely underfunded $3.5 trillion U.S. public pension sector. Current practices mean some contracts are not available to state auditors or other oversight bodies, including the legislature.

Between the two pension funds, according to their official reports, Kentucky’s state pension systems have liabilities of at least $30 billion, and are among the worst funded in the nation.

However, in December, using a more a conservative calculation, the KTRS’ underfunded liability grew by an additional $10 billion.

With Kentucky’s transparency legislation stalled before a House committee there are concerns it could die quietly before getting to a vote.

“There’s a lot of money involved and people who want to get their hands on this money and invest it have an opportunity to make a boat load of money themselves,” said Jim Wayne, a Democrat in Kentucky’s House. “They may well have a vested interest in keeping the system the way it is right now.”

Wayne has tried to bring transparency to the pension funds but his past legislative proposals have gone nowhere. He is not a sponsor of the current bill, which was written by Republicans in the Senate.

The KTRS successfully lobbied the Senate already to drop a requirement for the funds to publish material relating to the investment strategies of outside investment managers. It is studying its position on provisions for greater disclosure over the way it contracts fund managers.

‘WIDESPREAD PROBLEM’

Good government advocacy groups are now focusing on transparency at public pension funds. A recent report by The Pew Charitable Trusts found a “widespread problem among public retirement systems of underreported manager fees and expenses.”

The KRS, administrator of one of the worst funded public pension funds in the country, with less than 18 cents for every dollar it owes, outlined its opposition to the bill in a letter to House Democrat Brent Yonts.

“Several provisions will make the systems less efficient, less competitive, and will result in the expenditure of additional funds,” said KRS’s executive director William Thielen to Yonts on Feb. 16 in the letter seen by Reuters.

Yonts is head of the House committee on state government that would review the bill. Kentucky’s House is controlled by Democrats, while the Senate, where the bill originated, is run by Republicans.

Neither Thielen nor Yonts returned requests for comment.

Reporting by Edward Krudy; Editing by Daniel Bases and Frances Kerry

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