Battle lines forming in clash over pension plan

Two Macon-Bibb County commissioners are girding for battle over the county’s main pension plan, citing a need to find a better return on investment.

Commissioners Gary Bechtel and Larry Schlesinger say they will propose starting a new bid process to see who will manage Bibb County’s main pension plan. They question the amount of fees being charged for the plan and say another manager could be the best thing for retirees.

“I think we’re looking at bang for the buck,” Schlesinger said. “I think we need to reassess the monies that are going for fees to the consultants.”

But at least one other commissioner’s views differ on how the plan is performing. Commissioner Mallory Jones said that net return is more important than the fees charged, and he thinks the pension’s consultant, Independent Portfolio Consultants, is doing a good job managing the plan.

“It’s all about who’s doing the best job for the plan and the retirees,” he said. “It shouldn’t be any political agenda. If they’re continuing doing the best in a tumultuous market, that’s who I support.”

The fight over the pension plan has included claims that County Manager Dale Walker manipulated the fees that competing firms charged in favor of IPC in 2014, an assertion that Walker adamantly denies. The bids were reviewed by Walker and the county’s Human Resources director before Walker recommended IPC to commissioners.

Schlesinger and Bechtel were critical of the process in 2015 when they learned that Walker had a previous professional relationship with one of IPC’s senior consultants. At the time, IPC managed three plans tied to Macon and Bibb County — the fire and police plan, that of the former city of Macon and Bibb County, of which the County Commission serves as the board of trustees.

Schlesinger and Bechtel lost a fight last summer over the Bibb County pension plan when Mayor Robert Reichert vetoed an attempt to rebid the job of investment consultant.

In the summer of 2015, however, the fire and police pension plan’s board of trustees, of which Bechtel and Schlesinger serve on, approved a new investment consultant.

While the fire and police board members were interviewing investment company representatives, Bechtel talked with representatives of several firms that also bid on the pension plans in 2014.

“There are questions about the original analysis that the county manager did — comparing fees and basis points, and we never felt they were completely accurate,” Bechtel said. “(The firms) were shocked they were ever put in that position and said they would never charge that amount of money. That brought into question how (Walker) came up with those numbers.”

Walker, in a statement to The Telegraph this week, said a lot went into the comparison of consultants.

“Of the nine firms that bid on the investment consultant contract, two were disqualified by Procurement. Of the seven remaining, different types of fee structures were proposed by each of the managers.

“Knowing that we would have to have a custody bank and fees for trades and executions, the process needed to make sure those costs were considered,” the statement went on to say. “If they (as well as management fees) weren’t included in the proposal, the market average at that time (60 basis points) was applied so there could be a more accurate comparison of fees. (The market average can change periodically, so the average at that time was used.)

“For comparison, Merrill Lynch — the previous investment consultants that stopped doing this type of work — was approximately 55 basis points, and they were both passive and active.”

WIDE RANGE OF FEES

From January through September of this year, IPC charged fees of $500,000 for the $107.5 million county plan and another $381,000 for the $74 million Macon plan. The Bogdahn Group, which manages the fire and police plan, charged $207,000 in fees.

The three plans posted asset gains over the first 10 months of 2016. They ranged from 6 percent for the fire and police plan to 5.2 percent for the Macon plan and 5 percent for the Bibb plan, according to figures from the Macon-Bibb County Finance Department.

The types of markets that the plan can be invested in has affected returns. State regulations prevent the main county pension plan from investing in certain markets that the other two plans can, Mayor Robert Reichert said.

Reichert says he’s not “adamantly opposed” to rebidding the plan, but he questions the reasoning for believing that the plan would be performing much better under a different consultant. With higher risk in foreign markets, the success of the main pension plan could be different, he said.

Often, the cycle of a financial market is eight to 10 years.

“They say the returns are not that much better with IPC to justify the fees,” he said. “IPC, on the other hand, says we’re in a defensive posture for you at your suggestion of what you said you wanted to do. While the returns might not be as good right now as in an up market, the losses won’t be as down in a down market.”

Unlike some other companies, IPC does not charge “layers of embedded fees” that can go unnoticed or other fees that are later charged to the client, IPC Senior Consultant Cheryl Underwood said in a written response to The Telegraph.

A comparison of the how the fees are charged is like “comparing apples to oranges.”

“If the plan declines in value, then IPC is penalized by receiving less fee based on the market decline in the client’s account,” Underwood said. “Unlike IPC, many consulting firms get paid a fixed dollar amount regardless of how the account performs.”

Schlesinger, however, said that figures provided by the county show that the fees are too high for the return on investment.

“Both of those smaller pensions were charged more in fees than the much larger police and fire pension,” he said. “That’s where you see the fee numbers that Dale was proposing were not true.”

A plan’s management style — passive or active — also determines the amount of fees. Bechtel said he prefers commissioners having more say over the method of investing used on the plan.

“As the board of trustees for at least the county, we were never given the option of choosing a passive or active investment,” he said.

Commissioner Scotty Shepherd, who as a former Bibb Sheriff’s Office employee draws from a pension plan, said he appreciates IPC’s management style.

“They’re true professionals and have made us money every month except one, and that’s one everyone lost money in,” he said.

This story was originally published November 25, 2016 at 11:49 AM with the headline "Battle lines forming in clash over pension plan."