South Carolina Treasurer Sounds Alarm About State Investments

"We have an underperforming pension plan that is expensive, overly complicated and places the taxpayers and pension plan members at excessive risk," he told a state Senate committee Tuesday.

He says it's something that everyone in the state should be concerned about, since the state's share of the retirement plan is paid by all taxpayers. "So if the fund doesn't make much money, we all have to pay more, and that's the state employee and the taxpayers. So this affects literally everybody in South Carolina," he says.

South Carolina's pension plan has about $26 billion in it. Last year, that money earned 18.6 percent, compared to the national median of 21.4 percent.

Even though it earned less, the state paid higher management fees than most other states. South Carolina paid $343 million in management fees last year, compared to Virginia, which paid $271 million, even though its system is more than twice the size of South Carolina's.

And Loftis says many of South Carolina's investments are in riskier "alternative investments", like hedge funds, managed futures, real estate, commodities, and derivative contracts. He says most large pension funds allow less than 10 percent of their money to be in alternative investments, but South Carolina has about 50 percent of its retirement system money in them.

The money in the state's pension plan is overseen by the South Carolina Retirement System Investment Commission, a six-member board that includes the state treasurer. That commission also has a chief investment officer, which was Bob Borden until he resigned in December to work for a private investment firm in North Carolina.

Loftis says Borden set up many of the state's current investments and that few others, if anyone, understand them. Loftis has been critical of Borden's work at the commission.

Last June, Loftis asked the commission for Borden's calendar, travel schedule and entertainment expenses. The commission refused and told Loftis to file a Freedom of Information Act request, which pertains only to public information.

Loftis told senators, "I am a fiduciary and am therefore due privileged and timely information, but I was not given this information and, to this date, I do not have that privileged information. This serious breach of the Commission's fiduciary responsibility, to provide timely and useful information, is but one of many examples of the need for much greater transparency and accountability within the Commission."

He says the legislature doesn't need to pass any new laws regarding the state's investments; the current laws just need to be enforced. So who enforces those laws?

"In some cases it's the treasurer; some cases the Budget and Control Board; and some places it's the commission. I think all of us have let the system down," he says.

He says the solution is greater transparency and accountability.