In response to the Kentucky state pension plan’s willingness to pay hefty fees for billions of dollars in investments it can’t publicly disclose, one state representative said Thursday he is introducing a bill to make pensions subject to state open-access laws.
Of the nearly $16 billion in assets held by Kentucky Retirement Systems, about 30 percent is placed in so-called “alternative investments,” such as hedge funds and private equity funds, whose holdings KRS agrees not to reveal. These alternative funds are notorious for charging high fees, even when they underperform stock market benchmarks.
As the Kentucky Center for Investigative Reporting wrote in July, KRS claims it cannot disclose total fees for three alternative funds containing $1.5 billion in retirees’ money. The funds, with names like the Henry Clay Fund and the Daniel Boone Fund, are “funds of funds” because they invest in other hedge funds. Former KRS trustee Chris Tobe estimated that their total fees came to $156 million in the 27 months ended March 31.
State Rep. Jim Wayne, D-Louisville, citing KyCIR and Lexington Herald-Leader investigations, is calling for an end to the secrecy.
“The current model smacks of the good ol’ boy system,” Wayne said in a news release. “The system is closed. A small group decides behind closed doors who gets to manage billions of dollars in public money and what they’ll get paid for it, no questions allowed. That’s just way too chummy for my tastes.”
By putting KRS under state procurement laws, all contracts and contract details would be open to public review. It would also ban the use of “placement agents,” middlemen who are paid large sums for essentially making introductions.
Wayne’s bill would also raise the investment expertise needed to serve on the KRS Board of Trustees.
KRS is one of the most chronically underfunded public pension plans in the U.S., with only about 45 percent of assets needed to cover retirement obligations to about 340,000 state, city and county pension-holders.
“The health and well-being of public employee retirement systems should not be shrouded in mystery,” Wayne said. “No one should be required to invest their hard-earned money in a system that is not fully transparent. Not only should public employees know if the systems are financially stable, the taxpayers should also know.”
Late in the 2014 legislative session, Wayne introduced a similar bill that he said drew opposition from KRS officials. The session ended before the bill could be considered.
Reporter James McNair can be reached at email@example.com or (502) 814-6543.
This story was reported by Louisville Public Media’s Kentucky Center for Investigative Reporting.