Florida CFO Presents State Board of Administration Oversight Reform Suggestions to Investment Advisory Council
Dec 4, 2009
During the December 3, 2009 meeting of the Florida State Board of Administration’s (“SBA’s”) Investment Advisory Council (“IAC”), Florida’s Chief Financial Officer Alex Sink offered suggestions on reforming oversight of SBA, among which included the installation of a larger, more financially knowledgeable Board of Trustees (“Board”).
In her recommendations, CFO Sink specifically asked for three SBA reforms:
- An expansion of the Board from its existing three members to include others with financial expertise;
- Engagement of an independent, external auditing firm to audit annual financials; and
- Requiring the IAC and Board to undergo annual fiduciary training.
“We have three elected officials who are in charge of the fourth-largest pension fund in the country, and that is an extraordinary responsibility,” explained CFO Sink, who formerly led Bank of America in Florida.
“The oversight has really seemed to be almost an afterthought,” she said, pointing out that SBA discussions have traditionally been “maybe 15 or 20 minutes tacked onto the end of Cabinet meetings.”
“It’s critical that we look at expanding the board or restructuring the board to require that the Board members have some kind of accounting or financial background,” the CFO continued. “Think about this: After the election in 2010, it is possible we will have three new Board members who have no experience with this. That would never be accepted in the corporate world. That is a situation that does not serve the beneficiaries well, and it doesn’t serve the investors well at all.”
CFO Sink asked the IAC members to offer their recommendations on IAC governance changes to her at the December 8 SBA quarterly board meeting (which will be held as part of the Florida Cabinet agenda).
The IAC members’ reception to CFO Sink’s suggestions was mixed. Most of the members were supportive of the proposed annual training and external audit, but some were not interested in changing the composition of the SBA Board.
Both CFO Sink and Florida Attorney General Bill McCollum are expected to present the Florida Legislature with different IAC and SBA reform strategies during the 2010 Regular Session.
To view complete meeting materials from yesterday’s meeting, click on the hyperlinks below:
Florida’s SBA is a constitutionally created agency that is comprised of the state’s Governor as chair, the Chief Financial Officer, and the Attorney General. The Trustees delegate authority to an Executive Director (currently Ash Williams) who serves at the discretion of the Trustees and is responsible for managing and directing all administrative, personnel, budgeting, investment policy and investment functions of the SBA. The SBA’s IAC is an advisory group to the Board and its duties include reviewing SBA investments and making related policy, strategy and procedural recommendations to the SBA Board.
Media coverage of the December 3 meeting from The News Service of Florida is reprinted below:
Should you have any questions or comments, please contact Colodny Fass.
THE NEWS SERVICE OF FLORIDA: Sink Takes Pension Revamp Proposals to Advisory Council
By KATHLEEN HAUGHNEY
THE CAPITAL, TALLAHASSEE, Dec.3, 2009……..Florida Chief Financial Officer Alex Sink continued her push Thursday for a revamp of the state pension fund’s governing structure, arguing that the professional financial world would never allow the type of structure that the state has in place.
Sink, a former banker, began pushing for a governing revamp in September, but was stopped short by her Cabinet colleagues, Gov. Charlie Crist and Attorney General Bill McCollum, who thought there may be a constitutional issues with the plan.
A legal analysis by former Supreme Court Justice Major Harding concluded that lawmakers could make changes to the governing structure, but McCollum still disagrees and said in a letter to Sink this week that he believes the duties of the board can be changed, but not the composition.
McCollum said in the letter that he is looking at his own legislation regarding the board. And Sink said that she has been working with Sen. Jeremy Ring, D-Margate and drafting proposals of her own.
Sink wants to expand the Board of Trustees to include more people with a financial or accounting background.
Currently, Sink, McCollum and Crist serve as the trustees, but McCollum and Crist are both lawyers by trade.
“You have to have board members who know the right questions to ask and the right actions to take when you’re in a difficult financial environment,” Sink told reporters after a meeting with the advisory council for the state’s pension system.
Sink presented her plans to the pension’s advisory council Thursday. The council is made up of private financial professionals who give advice to the SBA about the management and investments of the state retirement system. However, the ultimate fiduciary responsibility lies with the trustees.
The trustees also change with each statewide election, and Sink pointed out that in 2010, there could hypothetically be an entirely new group of trustees. Though, she and McCollum are both running for governor and one or the other may remain as a trustee. In addition to the governor, the state’s attorney general and the chief financial officer serve as trustees of the SBA.
If there is an entirely new group of trustees, there will be no one with institutional knowledge making decisions regarding the fund.
“You would never accept this in the corporate world,” Sink said.
Members of the Investment Advisory Council said they were interested in Sink’s work and wanted to be a part of the conversation as legislation is drafted to revamp the governing body.
“It clearly has to be reviewed,” said IAC member David Grain, CEO of Grain Communications, a wireless communications company in Sarasota.
In addition to expanding the board, Sink would like to see an external audit committee created and fiduciary training be implemented for trustees so they can be updated continually on issues that could affect the pension.
SBA Executive Director Ash Williams is set to brief Sink, McCollum and Crist at a quarterly meeting of the trustees next week. IAC Chair Robert Konrad will also speak to the board.
McCollum said in his letter that he is looking forward to discussing the matter at the meeting, though his proposals differ from Sink’s. He wants to make changes at the IAC level as opposed to the trustee level in addition to examining audit procedures and the ethics code.
“I firmly believe these changes will provide the additional oversight the trustees are seeking, in an effort to protect the financial future of all Florida Pension Fund participants,” he wrote to Sink. “I look forward to discussing this matter with you and with Governor Crist at our next Board of Trustees meeting.”
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