Loftis, others, say S.C. pension managers’ bonuses out of whack

October 9, 2013

Loftis, others, say S.C. pension managers' bonuses out of whack
By: Brian Hicks
Wednesday, October 9, 2013

So 14 state employees split $1.4 million in bonuses last week — for doing their jobs.

And not doing them all that well, according to Treasurer Curtis Loftis and a whole lot of other South Carolina residents.

The employees in question work for the Retirement System Investment Commission, where they manage the state’s $27 billion pension fund. For the fiscal year ending June 30, the portfolio made a 9.99 percent profit (after fees and expenses).

It takes about a 7.5 percent return just to keep up with pension payouts, so apparently anything else is gravy.

Now the chairman of the commission, Reynold Williams, says that the hard work of these folks made the state nearly half a billion dollars last year, so “We believe that $1.4 million is a small price to pay for that kind of return.”

When you put it that way, it doesn’t sound so bad. But when you say, hey, we gave somebody $300,000 for doing their job, well...

Loftis says the pension portfolio isn’t even doing as well as it could be, that South Carolina suffers from low expectations — as usual. He calculates that, in the past three years, the state could have made an extra $1.3 billion through better investments.

That lost opportunity just means taxpayers and retirees have to pay more into the system.

Lagging behind

To be fair, bonuses are fairly common in the investment world.

You either pay them or you lose the best folks to Wall Street. That’s just the way it is.

Most states use incentives to attract good investment managers, Loftis concedes. But most states hold their employees to a higher standard.

“I would have no problem paying the same compensation as the top 10 percent of states for portfolio performance that matches the top 10 percent of states,” Loftis says. “Sadly, the commission’s plan rewards below average performance.”

The treasurer says South Carolina routinely sees investment returns in the bottom 25 percent of states. This year — when four managers got 100 percent bonuses (one for $300,000) — the state still ranked in the bottom 19 percent.

And since the story broke over the weekend, a lot of residents have called or written to say that they could have gotten a better return — and wouldn’t have charged nearly as much.

Funny thing is, if you think this bonus plan is bad you should have seen the one they had before: top bonuses if the profit returned was one point over the benchmark.

Loftis voted for the new plan two years ago, but has opposed the bonuses every year since. And now he wants the Legislature to step in.

Smell test

Financial professionals and folks who play the market note that the Dow Jones average was up nearly 16 percent last year. And the Total U.S. Equity market outpaced the state’s portfolio, as well.

Sure, investment managers can’t just go out and buy stocks — especially since you can’t predict when those loons in Washington are going to try to wreck the economy. You have to invest in something a little more stable. And stability is going to lead to a little lower return.

But a lot of people say between rich fees and poor decisions, the state’s pension fund isn’t as robust as it should be.

Now, if you aren’t a state employee, why should you care?

Well, because it speaks to the state’s financial health. And, more importantly, the state is on the hook for pension funds, whether the money is there or not.

So it’s on us — the taxpayers.

Even if bonuses are a way of life in the investment world, this doesn’t exactly pass the smell test. Loftis is not only looking at this from an accounting point of view, but also a political one.

You have to consider these bonuses in light of state salaries. The average South Carolina employee makes less than $40,000 a year and the average retiree draws about $20,000 from their pension.

A $300,000 bonus for a decent job looks pretty extravagant when stacked up against what people in the real world have to live on.

And that’s the bottom line here.

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