Lawmakers and Retirement Office Debate In‑House Investment Program, Staff Pay and Transparency Bills

House Appropriations Government Operations Division Chairman Munson convened the committee to review House Bill 1022 and related policy changes affecting the Retirement and Investment Office—s (RIO) internal investment proposal and compensation package.

RIO interim CFO/COO Rachel Kametz and Interim Executive Director Jody Smith updated the panel on changes between the Burgum and Armstrong executive budgets and identified pending legislation that could affect RIO—s budget. Chief Investment Officer Scott Anderson explained the technical and operational consequences of three bills he said could materially alter the office—s plan or ability to retain staff: House Bill 1319 (legacy fund disclosure website), House Bill 1330 (divestment from Chinese companies as drafted), and House Bill 1348 (repeal of the unclassified status/incentive compensation package).

Why it matters: RIO is proposing to bring roughly 15% of certain assets in‑house initially to reduce fees, improve rebalancing and cash management, and pursue modest active outperformance. RIO told the committee that doing that work requires specialized staff classifications and an incentive compensation structure to attract and keep experienced investment professionals.

Anderson described the operational case and conservative business‑case numbers: reduced external fees and improved implementation could produce net savings after costs; the internal program budget discussed (including personnel and technology) was presented as roughly $16–17 million in net annual benefit at modest performance gains. He said some components are near‑term and mechanical (improved rebalancing, cash management) and could show results quickly, while other active management gains require longer time horizons for evaluation.

RIO officials repeatedly flagged three legislative risks. Smith told the committee the legacy fund disclosure bill (HB 1319) could trigger ongoing software and staffing costs if enacted with a fiscal note. Anderson added that a disclosure requirement to publish underlying holdings could violate nondisclosure terms in contracts with external managers and "lose commercial relationships." On HB 1330, Anderson said the way “China” is defined in the draft could force divestment from large developed‑market companies and effectively end the planned internal program. On HB 1348, Smith and Anderson warned that removing unclassified status and the incentive comp package would make recruiting and retaining investment professionals much harder: Anderson said the office previously had two investment professionals managing a complex portfolio and now needs a larger team to run an in‑house program safely.

Representative Bosch asked whether the pending bills were slowing hiring or pausing pilots. Jody Smith said a new investment team member had started that day, another vacancy remained, and uncertainty had created "some expressed frustrations internally." Anderson said procurement delays related to required IT (a large project designation) and legislative uncertainty had pushed a planned rollout back several months; RIO now expects to begin operating in earnest in April with expanded activity by July 1.

On compensation and incentives, Anderson described the rationale for an incentive plan: high skill, measurable performance, and market compensation needs. He said RIO used Mercer benchmarking and set a 1 basis point post‑cost hurdle (more conservative than the consultant—s 0 basis point suggestion) for incentive payouts. He said the program is structured so payouts occur only after net returns exceed cost and benchmarks, and he presented scenarios showing how modest basis‑point outperformance materially increases annual net returns to the plans.

Committee members pressed RIO for clearer, shareable materials. Anderson offered to provide the slides and Mercer study the office used to build its business case; Representative Brandenburg asked the office to emphasize the local economic benefits of hiring in‑state investment professionals.

Ending: Committee members asked RIO to return with more detailed slides and updated fiscal impacts after pending bills move through committee. RIO officials said they would continue coordinating with the governor—s office and the State Investment Board and planned to present pilots and progress in upcoming hearings.