Treasurer Dale Folwell said he’s expecting a plan this week outlining how the state’s $89.1 billion pension fund can slash its annual management fees by $100 million.
Folwell, a Republican who took office in January, said Monday that the plan was being prepared by the department’s chief investment officer, Kevin SigRist.
Folwell, who promised the lower management fees during last year’s campaign, said he personally has been calling the pension plan’s money managers and asking them a series of basic questions, including “How good are you?” and “How much are we paying you?”
By and large, Folwell said, he was discovering that “active managers” that pick and choose individual investments weren’t performing as well as much less expensive index funds designed to mimic a certain group of investments, such as the S&P 500 or the Dow Jones Industrial Average.
Folwell said that the pension plan currently has $3 billion invested in one index fund which charges “close to one basis point,” or 1/100th of a percent of the amount invested.
Achieving the savings Folwell anticipates won’t happen overnight, however. In addition to contracts with money managers that extend beyond this year, some of the “alternative investments” may not be “easily sellable or liquid,” Folwell said.
Folwell discussed the pension fund’s management fees during the first of what he is calling “Ask Me Anything” conference calls with reporters.
Seven reporters asked a series of questions touching on an array of issues during the approximately 45-minute call. They included a proposal by the state’s debt affordability panel to address unfunded future health care expenses of retired state employees and unfunded future retiree pensions that total about $38 billion; as well as the financial issues facing the state health plan given that, according to Folwell, the plan’s prescription drug costs are expected to rise 8 percent to 10 percent and medical care costs are expected to rise 8 percent this year.
The calls, which are scheduled to be held monthly, were initiated by Folwell to “increase transparency and provide accessibility,” spokesman Brad Young said at the outset of the call.