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Yahoo
31-03-2025
- Business
- Yahoo
Amended bill related to RIO incentive compensation program gets do-pass recommendation
Mar. 31—BISMARCK — A bill related to an incentive compensation program for the North Dakota Retirement and Investment Office got a do-pass recommendation on a 14-2 vote from the Senate Appropriations Committee on Friday, March 28, after it was amended to have the agency report to the appropriations committees during the next legislative session regarding its plan to internally manage 50% of the investments under control of the State Investment Board. Sens. Cole Conley, R-Jamestown, and Sean Cleary, R-Bismarck, were opposed. Before the Senate Appropriations Committee hearing on Friday, its Human Resources Division failed to include an amendment to House Bill 1022 on a 2-3 vote that would have removed Retirement and Investment Office fiscal operations positions from being eligible for the incentive compensation program. The amendment also included a 75% cap on the bonus for the Retirement and Investment Office's incentive compensation program for each eligible full-time-equivalent investment position. The motion also included adding an amendment that would require the North Dakota Retirement and Investment Office to report to the appropriations committees during the legislative session in 2027 about its plan to internally manage investments. Cleary and Sen. Jeffery Magrum, R-Hazelton, voted to approve the amendments. Later during the hearing on HB 1022, the Senate Appropriations-Human Resources Division approved on a 4-1 vote adding the amendment that would require the North Dakota Retirement and Investment Office to report to the appropriations committees during the legislative session in 2027 about its plan to internally manage investments. Magrum was opposed. The Senate Appropriations-Human Resources Division also gave a do-pass recommendation on HB 1022 on a 3-2 vote, with the amendment requiring RIO staff to report to the Legislature in 2027. Cleary and Magrum were opposed. The incentive compensation program could allow the top two RIO officials to earn up to 100% of their salaries as incentive compensation, although officials in the office said that might not happen every year. RIO is responsible for coordinating the activities of the State Investment Board and the Teachers' Fund for Retirement, according to RIO's website. The State Investment Board has statutory responsibility for the investment program of several funds, including the Legacy Fund. The annual salaries for the RIO executive director and chief investment officer are $237,400 and $312,000, respectively. The documents of the incentive compensation program say it is designed to help attract and retain talented investment professionals. The program is also designed to help RIO earn the highest possible investment returns at a reasonable cost and at controlled levels of risk and to reward long-term investment performance. During the 2023 legislative session, the state Legislature authorized RIO to develop an incentive compensation program for its investment and fiscal operations positions necessary for the management of funds under the control of the State Investment Board. North Dakota Century Code Chapter 54-52.5-04 says that RIO may develop an incentive compensation program for full-time-equivalent investment and fiscal operations positions necessary for the management of the investment of funds under the control of the State Investment Board. The State Investment Board must approve annually the provisions of the program. Cleary said one of his amendments to HB 1022 would remove "fiscal operations" from North Dakota Century Code Chapter 54-52.5.04. He said the incentive compensation program is an investment performance program for employees making the investments. "I don't know if the plan is to have the executive director as part of this," he said. "It looks like the plan they proposed in the interim is, but that also seems odd to me." Cleary told The Jamestown Sun that fiscal positions aren't directly involved in making the investment decisions. He said it's odd for fiscal positions to be eligible for the incentive compensation program that's designed to provide a bonus based on investment performance. "I think common sense here dictates that the bonus for investment performance should be given to folks making the investments," he said. "Whether it's executive director or fiscal staff ... I don't think the labor market is different on how we need to compensate compared to someone who's an investment analyst — there's a lot of different pressures there — from how they're being compensated in the private sector and in other public sector agencies. But, the fiscal staff and the director, those are positions that to me it just doesn't make as much sense to have them be part of this investment bonus structure, and I don't think anyone really had that in mind when we passed it two years ago." Another amendment by Cleary — which was not approved to be added to HB 1022 — included capping the maximum incentives at 75% of an investment position's salary for the incentive compensation program. "There is a bill in the House to get rid of this program entirely," Cleary said at the Senate Appropriations-Human Resources Division hearing. "I think I said when I introduced this amendment, that seems short-sighted. We are asking them to do more; they need to pay competitively to do that. Part of that is the bonus structure. "I don't want to speak for the subcommittee or the Senate, but I don't know if folks understood that that meant that there's going to be bonuses up to 100% of the salary," he said. "So when you see that, it seems like it could be a lot, and that's where the 75% of the cap came from." Cleary told The Jamestown Sun that the 75% cap for a bonus through the incentive compensation program was a guide rail into how high the maximum bonuses should go. "I think the way I landed on that number is it seems like a 100% bonus just seems pretty excessive in public-sector employment and so I thought 75%, that's still a pretty generous bonus on top of their base salary," he said. Cleary said he reviewed some testimony from the 2023 legislative session about RIO investment staff. "That's just now how it (incentive compensation program) was implemented during the interim (session)," he said. Sen. Kyle Davison, R-Fargo, said at the Senate Appropriations-Human Resources Division that he reviewed what he was involved in last session and what the Legislature's commitment was in looking at a new system to manage state investments. "It's what I committed to last session from a system change ... that I believe is the right system, and then when I look at the 75% of the base and the pay on the amendment, that wasn't what I agreed to previously," he said, referring to RIO's budget. "I think the State Investment Board has done their due diligence. I think RIO has done their due diligence on what this pay should be. I think we should let the process evolve over a session over the next couple of years before we meet again and monitor it." Jodi Smith, RIO interim executive director, told the Senate Appropriations Committee that Verus Advisory Inc. sets the benchmark for the incentive compensation program before the fiscal year begins. "If we are one basis point above, that's where you get the minimum compensation," she said. "If we are 25 basis above, that's where you get that middle ground. Then we would have to get to 50 basis points before you got that maximum." She said using the current benchmark and $23 billion in assets, RIO would need to bring a benefit of more than $19 million above the benchmark before the minimum bonus for the program is instituted. "That incentive payout then by gaining $20 million to the state is $205,000 so to me that's a pretty nominal number when we are gaining the state that $20 million," Smith said. "In order to gain up to that maximum amount, which is what the policy is written at today, we'd have to earn the state $132 million above that benchmark. That payout then is looking at about $2 million based off of our current pay scale of our employees." She said anyone eligible for an incentive bonus is not eligible for a performance bonus. Smith also said RIO determined it wanted the authority to design and implement an incentive compensation program during the last legislative session, "which is kind of stepping outside what most other agencies are able to do." "Then they wanted the time for the board to write a policy," she said. Conley told The Jamestown Sun that he is opposed to the top two people in RIO potentially receiving 100% of their salary as a bonus. "Those same two people were the ones that could set the threshold, and they set it at a half a percent," he said. "I think the people that have the most to gain shouldn't be the ones setting the threshold on how they get paid." He added that RIO has hired an independent consultant to set the benchmarks, which "is probably a good thing." Smith wasn't the executive director when the incentive compensation program was approved. Jan Murth, former RIO executive director, resigned from her position, effective Jan. 3. The incentive compensation program provides incentive compensation as a percentage of regular compensation, with 80% of the incentive compensation based on the financial performance of the investments and 20% based on individual goals, according to the Retirement and Investment Office's budget No. 190 for SB 2022. If the three-year rolling average return of the investments exceeds the benchmark return by 0.5%, 100% of the incentive compensation based on financial performance is available to the employees, the document says. The maximum incentives as a percentage of regular compensation are as follows: * 100% for the chief investment officer and executive director * 90% for the deputy chief investment officer * 75% for the chief risk officer, senior investment officers and portfolio managers * 60% for the chief financial officer * 50% for investment officers, risk officers and accounting managers * 25% for senior investment accountants and investment accountants Plan participation is determined based on employment status and the executive director's assessment of the position's impact on the Retirement and Investment Office's overall investment performance.
Yahoo
07-02-2025
- Business
- Yahoo
House committee approves amended bill on Legacy Fund disclosure
Feb. 6—BISMARCK — The House Finance and Taxation Committee approved an amendment to a bill on Wednesday, Feb. 5, relating to a website that would disclose all North Dakota Legacy Fund investments. Introduced by Reps. Mitch Ostlie and Bernie Satrom, both R-Jamestown, House Bill 1319 would require the State Investment Board to maintain a website accessible by the public containing information regarding all Legacy Fund investments. Sen. Cole Conley, R-Jamestown, is carrying the legislation in the Senate. The amendment removes the requirement of the website to list all companies, funds, derivatives and other financial mechanisms in which the Legacy Fund is invested along with the country of incorporation for each investment. The website will no longer be required to list the county of the principle manager of the fund, derivative or other financial mechanism. The amendment also removes the requirement of the website to list the amount of Legacy Fund money invested in a company, fund, derivative or other financial mechanism. The amended bill now says the website must list all companies, funds and other financial mechanisms in which the Legacy Fund is invested in accordance with state and federal laws. The bill also says the North Dakota Retirement and Investment Office may spend funds necessary for the development and maintenance of the website within the limits of legislative appropriations. The fiscal impact of building the new website and hiring an additional full-time employee would be about $461,000 for the 2025-27 biennium. For the 2027-29 biennium, the fiscal impact would be over $246,700. In 2010, North Dakota voters approved a measure that created the Legacy Fund, which is a perpetual source of state revenue from the finite national resources of oil and natural gas, according to the Office of State Treasurer's website. Thirty percent of the taxes on petroleum produced and extracted in North Dakota are transferred to the Legacy Fund monthly, according to the North Dakota Retirement and Investment Office's website. The Legacy Fund has almost $11.5 billion as of Oct. 31. The State Investment Board has statutory responsibility for the administration of the investment programs of several funds including the Legacy Fund, according to the Retirement and Investment Office's website. Satrom spoke in support of the bill on Tuesday, saying that there is $3.1 billion invested from the Legacy Fund where the underlying investments are hidden from public view. "The problem is we have $3.1 billion we really don't know about," he said. "Somebody signed contracts that said we can't know. ... If it's the people's money, we have a higher responsibility. We have responsibilities to them." He said the Legacy Fund could be invested in derivatives. "You really don't own it. It's kind of like a bet," he said. "Warren Buffet ... called it weapons of mass financial destruction." He also said the Legacy Fund is being invested in foreign countries, including China. He said the Legacy Fund was also invested in Russian government bonds before it invaded Ukraine. He said those investments were divested after Ukraine was invaded. Satrom previously told The Jamestown Sun that the Legacy Fund is or has been invested in over 60 foreign countries, including Argentina, China, Columbia, Kazakhstan, Kenya, Mexico, Togo and Turkey. He said the general public would be "appalled" if they knew the Legacy Fund was or is invested in Russia or China. "I don't care how much money you make. If it's morally wrong, then I think it's morally wrong," he said. "I don't think you can justify (Chinese investments) with any amount of money." Satrom said an attorney general's opinion has not been issued for an open records request regarding Legacy Fund investments. Tory Jackson, a Bismarck attorney, wrote in a column for the North Dakota Monitor that he requested a list of all foreign and domestic holdings and the investments made by each private money manager hired by the State Investment Board. He also requested information about the investments made by 50 South Capital, a Chicago-based firm, that is responsible for the portion of the Legacy Fund that is supposed to be invested in North Dakota. Jackson wrote in his column that the list of Legacy Fund investments as of Nov. 30, 2023, contains "a few curious items, including over $160 million invested in the 'emerging markets region,' over $520 million in the 'global region,' and nearly $46 million in the 'international region.' " The list of those Legacy Fund investments shows no countries that the money managers have invested in and only categorizes the investments being in the "global region," "international region" and "emerging markets region." Jackson requested an opinion from North Dakota Attorney General Drew Wrigley on Feb. 9, 2024, on whether the North Dakota Retirement and Investment Office violated the open records law. The opinion has not been issued. In a letter to former Lt. Gov. Tammy Miller, who formerly chaired the State Investment Board, Conley asks why Jackson was denied information about foreign investments in categories such as "global region," "international region" and "emerging markets region" but not for other investments in countries that range from Argentina to Thailand. In a response to Conley's letter, Miller wrote that Jackson was not denied information about foreign investments in categories such as "global region," "international region" and "emerging markets region." She wrote that certain investments such as commingled funds that have exposure in more than one country of risk are listed by regional categories because "to do otherwise would require RIO to alter the record from its custodian and thus be less transparent." "Further there is significant additional information regarding country of risk exposure of such funds available in reports that RIO publishes on its website," Miller wrote. The Retirement and Investment Office and the State Investment Board support the establishment of a website dedicated to the Legacy Fund, said Jodi Smith, interim executive director of the Retirement and Investment Office, in her testimony opposing HB 1319. "My concern is that as that fund grows, the light that's shining on it is also going to grow," she said. "The more money you have, the more attention you are going to get. If we continue to grow at $2 billion a biennium, as that fund continues to grow, there is going to be more and more questions. There's going to be a higher light on that. Just creating that transparency, so it's easier to digest and more easier to synthesize, I think is in the best interests of everyone." She said the website needs to be simple for the public to find the Legacy Fund investments. She said individuals shouldn't have to open a PDF that is 100 pages long. "Then you have to understand how to read it," she said. The original bill "risks undermining the very investment strategies that have allowed the fund to grow and generate substantial earnings for North Dakota," according to written testimony by the Retirement and Investment Office opposing the bill. "The proposed public disclosure requirements would create contractual conflicts, limit investment opportunities, and expose the fund's strategies to undue market risks," the written testimony says. Smith said the amendment will allow the website to list the companies, funds and other financial mechanisms of how the Legacy Fund is invested in accordance with state and federal laws. "If the law requires that we disclose certain information, then we want to be prepared to disclose that," she said. "If the law says no you cannot or should not disclose that information then we won't." She said what can be disclosed is where the Legacy Fund is invested, the country of origin and how much each fund manager has. "It's that in between that is less than clear at this point in time," Smith said. "The agency has interpreted the statute that we can't disclose that information. There is an attorney general's opinion pending whether or not we need to disclose that." She said disclosing the information of the $3.1 billion that Satrom says are underlying investments hidden from public view would lose some investors. "They would probably pull out of the investments and there might be some legal challenges because we would then be disclosing the proprietary information," Smith said. "If that's what the Legislature chooses, we just need to be prepared for that outcome, the consequences. We can do that, it's just then we probably would take a step back from some of the earnings that we have there." Smith said the website would also cut down on the open records requests regarding the Legacy Fund. She said the Retirement and Investment Office is only receiving open records requests for the Legacy Fund.
