Senate panel reviews Retirement and Investment Office budget; debate over in-house investing, bonuses and $35,000 teacher outreach

The Senate Appropriations Human Resources Division on Monday heard testimony on Senate Bill 1022, the appropriation for the Retirement and Investment Office, with agency leaders describing a planned move to bring some investment management in-house, an incentive compensation program for investment staff, and a request to restore $35,000 the House removed for teacher outreach.

Why it matters: RIO manages roughly $23 billion across 31 client funds, including the Legacy Fund and the Teachers Fund for Retirement. Lawmakers and RIO officials debated whether the office's plan will produce cost savings, how independent benchmarks and incentive pay are set, and whether the committee should restore a small education grant the Teachers Fund board approved but the House left out of its version of the budget.

Jody Smith, interim executive director for the Retirement and Investment Office, told the committee RIO expects efficiency gains from recent technology and from creating an internal investment team. "Right now, that's averaging 2 to 3 days because everything is automated in the system," Smith said when describing improvements in pension administration after a recent IT go-live. She said a separate internal investment team is scheduled for a go/no-go decision this week, with trades planned to begin April 1 if the team proceeds.

Smith said the office hired most of the internal team and is asking the Legislature this session to fund the second half of one new investment position (about $1.2 million in adjustments across salary and benefits). She told senators RIO's analysis estimates bringing some investment management in-house could save roughly $17 million in manager fees over time, but that the savings will only be demonstrable after the program operates for about a year.

The committee discussed RIO's incentive compensation program, approved by the board for about 19 investment-related employees. Smith said the plan was developed with a third-party consultant and is intended to help retain staff: "We spend several years training in them. We invest in them, and then they kinda get poached by another state. Our goal is to create a program that is here, and optimizes, kind of, our ability to pay them and incentivizes them to to outperform the benchmark." She said the board and a consultant set the benchmark used to measure performance and determine bonuses.

Senators pressed RIO on how the benchmark and the consultant who sets it were chosen. Scott Anderson, chief investment officer, described the selection process: "We send out an RFI to several investment consultants that perform this sort of service and then we score those RFI's and then those RFI's we score them we bring back a short list of candidates... the investment committee recommended to approve and then we brought them to the full board for approval." Anderson said the office uses independent benchmark and performance consultants so performance measurement and incentive calculations are produced outside the investment staff.

Senators also raised transparency and policy questions around the Legacy Fund. Smith noted two pending House bills: HB 13-30, concerning divestment of direct Legacy Fund investments from China (she said that would affect about $22 million), and HB 13-19, which would fund a Legacy Fund disclosure website; Smith said the website has a separate fiscal note and that building the site could be a multi-phase, year-long project and might require consultant or IT work.

On the House's removal of a $35,000 line item to fund teacher education about benefits, Chad Roberts, deputy director for retirement administration, told the committee the money would fund pre- and post-surveys, marketing and educational materials and sessions to improve teachers' understanding of retirement benefits. "We would use that for surveying, first of all," Roberts said, describing an initial survey of roughly 10,000 participants and follow-up outreach to improve benefits literacy.

Committee action and next steps: The hearing closed without a vote; the chair closed the public hearing on House Bill 1022 and recessed the division until 1:00 p.m. Committee members indicated interest in restoring the $35,000 in conference if members agree, but no formal motion or final budget action was recorded in the hearing.

Details and figures discussed in testimony include: RIO manages over $23 billion across 31 client funds; the Legacy Fund is about $11.5 billion (October figure cited); RIO has 34 full-time employees; the Teachers Fund for Retirement reported a funded ratio of 71.63% as of July 1, 2024; RIO requested $1.2 million to fund the second half of a new investment position, one-time funding requests include $250,000 for a fiscal IT consultant, $200,000 contingency for executive searches, and ongoing operating amounts such as $18,000 for communications and $16,500 related to the internal auditor. The committee asked RIO to provide existing reports and the policy materials related to the incentive compensation plan.

The record of the hearing contains further discussion of governance (board composition and changes enacted by the Legislature), the role of continuing authority for special-funded agencies, and senators' questions about whether legislative staff could assist in consultant selection or benchmark review. No final appropriation or amendment was adopted at the hearing.

Closing note: The public hearing on House Bill 1022 was closed by the chair and the committee recessed; members signaled interest in further review and in receiving the RIO materials Smith offered to provide, including the presentation to the budget section and the incentive compensation policy.