Geoff Pender at the Clarion-Ledger reported last week on the Mississippi Legislature passing a bill allowing PERS to pay its director and chief investment officer as much as it wants. From the article:
The cap is currently $183,240, or 150 percent of the governor’s salary of $122,160.
Current PERS Director Pat Robertson announced this week that she plans to retire in mid- to late-2018. Sen. Barbara Blackmon, who handled House Bill 1301 — to make “technical revisions” to the state’s retirement systems — said a study showed the PERS director and chief investment officer don’t make as much as their counterparts in other states in the region.
Supporters of the measure say the PERS board needs to be able to offer a competitive salary to hire a capable new director….
With the cap lifted, the PERS board would set the salary for a new director.
Lawmakers debated whether a director of PERS, which is underfunded like many public retiree systems and has seen lackluster results from investments for years, should make a salary larger than the cap. Several lawmakers, on both sides of the argument, used Ole Miss and Mississippi State University football coaches’ salaries — $400,000 a year in state funds — as an analogy to PERS.
Sen. Sean Tindell of Gulfport had the right idea:
Tindell said he was voting for the bill to allow a competitive salary, but urged his colleagues to more closely monitor PERS.
“We can’t keep sticking our head in the sand like an ostrich,” Tindell said. “If we don’t do something about it, it’s going to bankrupt the state.”
I’m actually agnostic on this bill despite my constant criticisms of PERS. In the grand scheme of things, whether they pay the PERS director $183,000 or $500,000 is not going to make a difference in the survival or PERS.
Conversely, why is someone who makes more money better? Do states with the highest paid directors and investment officers have the best investment returns? I’m going to take a wild guess and say no.
What PERS needs that could make a huge difference is an executive director and investment officer who are ruthlessly committed to cutting the fund’s expenses and management fees. If someone could get those expenses and fees lower it would make a huge long term difference in the bottom line. Just reducing them by a few tenths of a percent would more than offset much higher salaries.
Here’s a quote on this topic from the book Global Asset Allocation: A Survey of the World’s Top Investment Strategies, by Meb Faber:
…while we are all busy paying close attention to our portfolio’s particular allocation of assets, the greatest impact on our portfolios may be something we fail to notice altogether. In this case, the so-called ‘gorilla’ are the fees that we often fail to consider. In one shocking example, we find the best performing strategy underperforms the worst strategy when we tack on advisory fees. Ultimately, smart investing requires that we not only monitor asset allocation, but of equal weight, we focus on the advisory fees associated with the investment strategy.
That’s something we all need to remember for our personal investments, including retirement accounts and 401(k’s). Do you check the expense ratios of the funds your money is invested in?
I can’t put my finger on the post, but I recall Kingfish identifying some fat in PERS expenses that could be trimmed. Here’s an article talking about how Warren Buffett has identified management fees as a problem for public pensions.
The football coach analogy is stupid. The football programs at Ole Miss and State earn huge profits for the schools. A good football team increases enrollment and is a boon for the local economies of Oxford and Starkville. A winning football team is going to return a lot more for the university and town than they pay the coach.
And there aren’t enough great football coaches to go around, so the best command premium pay. I don’t want to turn this into a football coach post, but the media doesn’t understand the business of hiring a firing football coaches. A coach is only as valuable as his ability to fire up the base to buy season tickets. The media bitches about LSU firing Les Miles despite his winning record. But the LSU AD is looking forward at prospective ticket sales–not at the trophy case. Firing Les was business–not personal.
Back to PERS. PERS directors and investment officers aren’t like SEC football coaches; they’re like lawyers. I suspect there are plenty of good directors and investment officers to go around. You could probably walk down the street to Millsaps and find people qualified on the faculty.
But whatever. The pay is not really that important, as alluded to by Sen. Tindall. What’s important is that PERS is going to crash and no one is doing anything about it.