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 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.
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'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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