Lawrence Davis took a crash course in the inner workings of the New Mexico Public Employees Retirement Association from the start.
On the day he was sworn in as a board member of the state pension fund, commonly known as PERA, another administrator accused him of having already made alliances with other board members. administration and staff. During his second board meeting, Davis said the former president informed him that she had seniority on him and that he should follow her orders.
Davis, who works in the City of Albuquerque Budget Office, hasn’t backed down. But he recently told lawmakers on a legislative committee that the two episodes marked the start of a series of “vile acts” he had encountered on the board and showed the urgency of restructuring PERA’s governance. . In other words, change the composition of the 12-member board, 10 of which are elected by other city, county and state government employees and retirees.
“Is this board of directors what you want to have to manage an $ 18 billion pension on behalf of 90,000 New Mexicans? Madam Chair and members of the committee, the point is, this board does work. not for its members and has not done so in recent years, “said Davis, adding that the board was embroiled in internal squabbles and lacked the” technical skill “to run a fund as complex.
It’s a familiar argument. A push to change the governance of PERA has been attempted in the past. He is regaining ground amid fears that the division of the board could hurt returns on investment.
Poor governance can cost pensions 1-2% per year, according to a study presented to lawmakers in 2019. In the case of PERA, that could add up to $ 360 million in a single year.
While the pension fund closed the year with a 24% return, the highest in its history, the pension system underperformed compared to peer funds.
“Over each long-term period, they consistently performed in the bottom quartile of the worst 25 percent of public funds over $ 1 billion,” said Ismael Torres, chief economist of the Legislative Finance Committee. , the monitoring of investments and pensions of the legislature. Committee earlier this month. “This tends to be the result of the asset allocation and the performance of those assets in those allocations as defined by the board of directors.”
The table has been described as “dysfunctional”.
Rep. Phelps Anderson, I-Roswell, sponsored a move earlier this year to change the composition from an elected 12-member panel to an appointed 12-member board with at least six members having an investment background, finance or administration of pension funds. Anderson said on Friday he expected lawmakers to see “a PERA reform bill” in the 30-day legislative session in 2022, although he noted it would belong to Gov. Michelle Lujan Grisham d ‘impose such legislation on its appeal.
âI and others will work on the necessary legislation,â he said.
When the legislative finance committee received a report this summer on the performance of public pension fund investments in the third quarter, lawmakers asked analysts to look at pension governance and its link to returns.
“If we could have [LFC staff] take a look at that and give us some thoughts on what we might want to tackle in the 30 day session to try and right this ship and what improvements in investment performance we might expect from these kinds of changes, i l ‘would certainly appreciate it,’ said the Speaker of the House. Brian Egolf, D-Santa Fe, said at the time.
LFC staff conducted a review of the board structures of the best funded pension plans in the country.
âI would say the big trend that surprised me when I started doing the analysis was how many of these well-funded plans were governed by boards made up mostly of appointed or ex officio members, and I think that emphasizes the value of professionalizing boards, âConnor Jorgensen, LFC analyst for PERA, told lawmakers.
Greg Trujillo, who was recently appointed executive director of PERA after serving on an interim basis for several months, declined to comment on the governance issue, saying “weighing in on board matters … would be sensitive.” But Trujillo said he was told the governance issue was about to be raised during the 30-day legislative session that begins in January.
“This is what we are waiting for,” he said.
While the session will be short and big topics are already on the agenda, including the fight against crime and bail reform, Anderson said the reform of PERA is “timely and essential” to ensure that pension funds continue on the path to solvency.
“Governor Michelle Lujan Grisham has supported past efforts to bring solvency to public pension funds,” he added.
Nora Meyers Sackett, the governor’s press secretary, did not return a message seeking comment on Friday evening.
Representative Javier MartÃnez, D-Albuquerque, said he had not heard Lujan Grisham “talk about his specific problem” and was unsure if she was planning to put him on her call.
âWhat I can tell you is that there has been a growing interest in the idea of ââprofessionalizing counseling due to the upheaval we have seen over the past few years,â he said. âSome of the things I have read and heard when talking to people is that the more professional we can make the board of directors, the better the performance of the fund. And if we can improve the fund, even 1% a year, that’s billions of dollars for retirees, and that’s ultimately the point, is to make sure that this fund is healthy and there in perpetuity. “
When asked if he was convinced of the idea of ââchanging the governance structure, MartÃnez said that “much of the uncertainty” stems from the politicization of the board.
âI’m not picking a side; I don’t have a dog in this fight, if you will,â he said. âBut what concerns me is making sure that our retirees have access to the funds that we’ve promised them. And I think a big part of that is governance. And we’ve seen that over and over again. timesâ¦ how the board behaves on time. “
Davis, who is one of four members who represent municipal government employees, warned the Legislative Assembly’s Investment and Pensions Oversight Committee earlier this month that the fund would continue to underperform unless that the composition of the board does not change.
âUltimately, the members of this great fund deserve a board of directors that will work to their advantage,â he said. “Unfortunately, the downward spiral will continue if the legislature does not act and act quickly to restructure this council for the benefit of its members.”
Stephen Neel, a government employee representative on the board of directors who works as deputy director of investments at the Educational Retirement Board, told committee members that the governance of PERA is one of the most pressing issues. most important issues facing policymakers today.
âOver the past five years, PERA’s portfolio has underperformed the median US public pension fund by about 1.5% per year,â he said. “This equates to roughly $ 1 billion in abandoned assets.”
Neel concluded that much of the underperformance “is due to the revolving door” of PERA’s CIO position, which indicates, in part, the inability of the board to work together.
âPERA has had four investment directors over the past 11 years,â he said. âWhen the current vacant position is filled, it will be the fifth CIO in five years. Over the past decade, the average length of service for a PERA CIO has been between two and three years. assistant CIO level and elsewhere, in portfolio managers. “
On the other hand, the teachers’ pension fund and the National Council of Investments have both had their Director of Investments for more than 10 years.
“Do I need to say more? ” he said.
“It is imperative to change the governance model of PERA for the sake of retirees, current members of PERA and beyond, the people of New Mexico because, in the end, it is the taxpayer who owns the invoice, “he added. “In my opinion, history will judge us harshly if we don’t take action to clean up the governance structure.”