The entity managing the assets of South Carolina’s state retirement system has grown steadily in recent years in its personnel, salaries and overall budget, a review by The Nerve shows.
And that entity, the S.C. Retirement System Investment Commission, plans to continue expanding with an aggressive strategy to ramp up its operations. Call it bringing Wall Street to Main Street, Columbia – literally.
For approximately 520,000 current or future retirees in the system, who include local government and public education employees as well as state workers, there’s a lot riding on the commission and its ambitious goals.
The same is true for state taxpayers.
State officials and outside evaluators say the retirement system is badly underfunded and the amount of the shortage has been mounting, raising the cost of a bill that taxpayers must foot to help cover the shortfall. The dollars involved range from tens and hundreds of millions to billions.
Many of those same officials have been sounding alarms about the situation for several years. But thus far the two bodies that could address it, the General Assembly and the Budget and Control Board, have not taken any meaningful steps to do so.
“And often times their arguments are ideological,” says state Treasurer Curtis Loftis, a member of both the Budget and Control Board and the Investment Commission board by virtue of his office.
Created under state law just six years ago, the commission manages the retirement system’s investments. The latest value of that portfolio hovers between $25 billion and $26 billion, according to Robert Borden, the commission’s CEO and chief investment officer.
Those investments and whatever money they earn, along with contributions to the system from current workers and an annual cash infusion from the state, pay retiree benefits.
The commission is framing its growth plans as an attempt to cut costs. By beefing up its staff, commission officials say, the investment operation can produce greater returns and yield savings by bringing more of its functions in-house and reducing millions in fees it must pay to outside money managers.
“It pains me to pay Wall Street what we have to pay them,” Borden told a Senate Finance subcommittee in late February. He was briefing the panel on the commission’s budget request for the 2011-12 fiscal year that begins July 1.
The commission asked for a nearly three-fold funding increase, from about $5.8 million it received this year to roughly $17 million for next year. That would be a bump of more than $11 million, most of which presumably would go toward additional high-priced help.
Yet while it would be a substantial jump for the commission, it would only accelerate a trend that has been gathering steam for the past several years. Indeed, The Nerve’s review of the commission’s payroll and overall budget shows a pattern of steady growth, with some significant salary spikes along the way.
Still, the Investment Commission’s sizeable budget request for next year far outpaces that trend – and there’s a reason why. The plea for more funding by the commission represents a new strategy to accomplish the objectives of a controversial plan it developed that became public last fall.
Under the plan – dubbed “NewCo” for “new company” – the commission was moving to create a separate, state-run firm to manage the retirement system’s private equity, or investments that are not publicly traded in a stock market. The system owns several billion dollars worth of private equity.
Commission officials presented the NewCo idea the same way they have framed their petition for a nearly 200 percent budget increase – as a way to reduce costs and boost returns by cutting out middlemen.
Commission officials say that outside money managers shave tens of millions of dollars off the top of the retirement system’s earnings every year. In a Sept. 27 article, The New York Times quoted Borden saying, “There are layers of fees, your control rights are zero and your costs are astronomical.”
But be that as it may, the NewCo plan provoked widespread opposition, so the commission scrapped it.
In its place the agency is seeking the budget increase to try to achieve the same end, but by doing so internally by hiring more investment experts rather than setting up an independent entity.
In his budget presentation to the Senate Finance subcommittee, Borden said he cannot predict greater returns with certainty. “But I can predict costs,” he said, elaborating that the commission has identified $30 million in savings it can realize with the budget increase. He added that the estimate is conservative and probably would be closer to $50 million.
But to get there, the commission must exercise greater oversight of its portfolio, Borden said. “And that’s what drives our resources.”
The House, which originates the state budget, gave the commission about half of its requested increase, funding the entity at $11.6 million for an additional 15 full-time employees.
The Senate Finance Committee scaled the increase back to about $2.9 million, funding the commission at $8.7 million for another eight FTEs.
But that would still be a 50 percent jump over this year, and it works out to handsome six-figure salaries for the would-be new hires.
For his part, Loftis says he’s for the additional funding. “It’s complicated,” the treasurer says, “but effectively what we’re doing is taking jobs from Wall Street and bringing them to Main Street, Columbia. It’s not new money. We’re already spending this money every year.”
The full Senate has been debating the budget since the final week of April.
Last week in a voice vote, senators adopted a proviso requiring the commission to report quarterly to the Legislature on the “savings realized” from the funding increase for the investment group’s cost-cutting efforts.
The proviso also says the budget hike “shall not be used to provide salary increases” for commission employees. However, it leaves some wiggle room on bonuses: “Performance bonuses may be provided upon approval of a majority vote of the State Budget and Control Board,” the proviso says.
The week the Senate took up the budget, commission salaries and bonuses were a brief discussion point on the floor of the chamber.
Among several questions about the commission’s budget increase, Sen. Joel Lourie, D-Richland, asked what Borden’s salary is.
One of the senators called out “$350,000, plus a 50 percent bonus.”
“They got any job openings over there?” Lourie asked wryly.
Whoever answered was just about right on the money. Yes in a well-worn witticism, when it comes to employment at the commission, it’s nice work if you can get it.
Given the investment agency’s plans to seek a gigantic budget increase, The Nerve used the S.C. Freedom of Information Act to obtain commission salary and bonus data going back four years.
The numbers reveal some arrows trending upward significantly:
- In 2008-09, Borden, who described himself to the Senate Finance panel as the first investment employee hired at the commission, received a more than $110,000, or 45 percent, pay raise – from about $242,000 to his current salary of $353,500.
- That same year, right in the middle of the Wall Street-induced global financial implosion, the commission gave out $177,000 in bonus pay. The commission did not identify who received what it calls the “performance incentive compensation,” but the amount was roughly 50 percent of Borden’s base salary.
- This fiscal year the commission kicked out $480,000 in bonus pay, but again did not name who received that money despite The Nerve’s FOIA request to that effect.
- The commission’s payroll has more than doubled since 2007-08, from nine employees and about $1 million in salaries that year to 19 employees and $2.4 million budgeted for salaries this year.
The Investment Commission’s overall budget has grown, too. In 2007-08 it was about $4.4 million; the next two years, nearly $4.8 million before hitting $5.8 million this year.
One of the commission’s new hires during the four-year stretch was Hershel Harper, who earns $170,000 in annual base pay and is the second-highest-paid employee behind Borden. Harper joined the agency in 2008-09 as its alternative investments director and is now the commission’s deputy chief investment officer. His salary has not changed.
But other commission employees’ salaries have increased, although not as dramatically as Borden’s:
- Also in 2008-09, Hilary Wiek received a nearly $30,000 pay raise – almost 33 percent – and a new job title, going from $91,700 as equity director to $121,200 as director of public and private equity.
- The commission’s lawyer, general counsel Nancy Shealy, got an almost $13,000 bump – more than 10 percent – the same year, from approximately $123,500 to $136,300, which is Shealy’s current pay.
It hasn’t been all gravy at the commission, though.
The data the investment body provided show that it paid no bonuses in 2007-08 or last fiscal year.
Heading into next year, it looks like the Investment Commission’s payroll and overall budget could grow even more precipitously. But if that does happen, the commission likely will have to demonstrate its proverbial bang for the buck to lawmakers.
Current and future retirees surely will be wondering about those cost savings, too.
Reach Ward at (803) 254-4411 or eric@thenerve.org.
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