The Macon-Bibb County Commission is going through the not-so sexy process of deciding who best to manage two of the county’s pension funds of which there are three. However, due to consolidation, only one fund is “active.”In the two “closed” funds, retirees still receive benefits even though the old city of Macon and Bibb County no longer exist. All funds have separate boards of trustees. The closed funds are in excellent shape, one, the Macon Fire and Police Employees Retirement Pension is fully funded and the former city of Macon plan is over 90 percent funded. The active account includes all the employees of Macon-Bibb County.
Managing those funds is done by professional money managers. The commission made a wise decision this month by having its consultants issue a request for proposals for money managers from all over the country to bid for the county’s business. More than two years ago, Independent Portfolio Consultants, won the business to manage all of the pension funds, but in April 2015, Commissioners Larry Schlesinger and Gary Bechtel started asking for another request for proposals for a money management firm after learning there had been a prior working relationship between County Manager Dale Walker and IPC executive Cheryl Underwood. The commission voted 7-2 to issue a RFP but Mayor Robert Reichert vetoed the measure and his veto was not overridden. In October 2015, the Macon Fire and Police Employees Retirement Pension Board voted to hire the Bogdahn Group (now AndCo Consulting) to manage its fund and dropped IPC.
Now, a little further down the road the commissioners are able to accurately see for themselves how well all the funds performed — and at what cost.
From January 2016 to September 2016, the two funds managed by IPC had a market value of $183 million. IPC’s fees during that period totaled $933,222. As a comparison, Bogdahn Group’s fees for handling one fund during the same period containing $212 million were only $207,566. In plain English, IPC charged four and a half times more for managing less money.
There are many different variables to explain how this could happen, but in a November letter from the county manager to Michael Fleming, the co-chief executive officer at IPC, Walker wrote, “As for the county plan, it has underperformed since IPC’s inception and the fee structure is at best double the competition.”
That should be troubling to the commission because it was Walker who did the due diligence when selecting IPC in 2014. The letter also notes that the county plan had “Outperformed its benchmark in September, for the first time since inception.” He was giving credit for the one month performance to one of the plan’s managers — Cheryl Underwood. More on that later. Fees are a two-edged sword. Money that’s paid in fees doesn’t add to the fund’s corpus and it doesn’t grow as it might.
The letter has other troubling aspects. Walker refers to Underwood more than two dozen times in a three-page letter always in the most glowing terms. The commissioner’s question should be, if Underwood was as good as Walker described to her boss at the time (she left IPC’s employment in January) why did she allow the county plan to under perform for two years, and why did Walker and fund trustees accept such poor performance?
Pensions have been the source of municipal headaches all over the country. Late last year, Dallas’s mayor, Michael S. Rawlings, told a state oversight board that his city, famous for its glass buildings and its Cowboys, appeared to be “walking into the fan blades” of municipal bankruptcy. Why? The police and firefighters pension fund, according to The New York Times, was “near collapse.”
Dallas isn’t an outlier. According to Governing, there have been 51 municipal bankruptcies since 2010 and cities aren’t the only entities that find themselves bogged down by pension obligations. According to The Mercatus Center, 11 states are having financial difficulties with Illinois barely able to meet its short-term obligations.
We point this out to remind citizens why the commission is spending its time making sure our promises to retirees are kept — and doing so without flushing taxpayers down the drain in the process. That can only be accomplished by continued diligence by the trustees and commission. That’s time well spent.