The provisions in Substitute House Bill 227 (Sub. H.B. 227) would require that 70% of investment trades and 50% of externally managed assets go to managers with a significant presence in the Buckeye State – a “buy Ohio” provision that the state’s retirement systems say could cost an estimated $180 million.
Additionally, the letter notes that Ohio’s State Treasurer has already asked for an increase in his budget to cover the cost of these additional responsibilities. The combination would, in the words of the board chairpersons, transform a bill designed to reduce spending into a spending bill. The move by lawmakers to introduce reform bills came after questions were raised earlier in the year about the spending practices at the State Teachers Retirement System (STRS) (see Ohio Pension Fund Hit for Lavish Spending Practices ).
The Ohio systems, which have combined assets of more than $115 billion, also challenged another provision in the bill that gives the state treasurer “super-authority” over the management and administration of the systems and their investments, according to the fund officials. In the letter they claim this would disrupt the checks and balances that exist in the current board structure by concentrating too much power with one person, and further caution that empowering the state’s treasurer with these appointment responsibilities impedes board members’ fiduciary duty, and potentially interferes with the current statutory structure that separates investment decision making from political considerations.
The board chairpersons for the five funds – the Highway Patrol Retirement System, the Ohio Police and Fire Pension Fund, the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, and the School Employees Retirement System – also claim that these provisions could threaten the systems’ qualified status as “trusts” under the Internal Revenue Code, which provides the tax-deferred status of members’ contributions until benefits are paid out to them upon retirement, citing a conclusion of the Ohio Retirement Study Council in its rejection of these two provisions of Sub. H.B. 227.
Last week the Ohio House and Senate passed competing pension reform bills, setting the stage for a legislative battle as the two bodies try and hammer out a compromise before the legislature adjourns in December (see Bill Places Ohio AG in Pension Investigator Role ). While the two bills share similarities, the investment-restrictive provisions of H.B. 227 have also drawn criticism from the Council of Institutional Investors and the National Association of State Retirement Administrators (NASRA) (see Ohio Pension Funds Face “Home Grown” Investment Restrictions ).