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OLO report urges shifting key retirement governance decisions to trustees and smaller, expert boards
Summary
The Office of Legislative Oversight presented research recommending Montgomery County clarify code duties, shift determination of most actuarial assumptions to the Board of Investment Trustees (BIT), and consider smaller boards with a majority of subject-matter experts. OLO also recommended that the CAO continue to select the retirement-system actuary while BIT set investment assumptions and the BIT/CRHBT have a role in final selection of the MCERP executive director.
The Office of Legislative Oversight (OLO) presented a report to the Montgomery County Government Operations and Fiscal Policy Committee that recommends several changes to the county's retirement trust fund governance structure, including clarifying code language, moving responsibility for most actuarial-assumption setting to the Board of Investment Trustees (BIT), and assessing whether board size and composition should be changed to increase the share of subject-matter experts.
Mr. Trumka of OLO said the county is an outlier because the Chief Administrative Officer (CAO) currently performs functions that nationally are often assigned to trust boards. "While the predominant national practice is for the Board of Trustees to select the actuary, determine actuarial assumptions, and select the Executive Director, in Montgomery County, the CAO is charged with each of these functions," he said.
OLO's research found that most public-sector trust boards nationally either allow the board to select actuaries and assumptions or to hire the executive director; a survey cited by OLO indicated 87% of respondents reported boards hire the executive director. OLO acknowledged the county's existing approach is not necessarily flawed, but recommended specific code clarifications: (1) amend county code to clarify administrative responsibilities related to trust fund asset management, (2) enumerate CAO responsibilities for CRHBT administration, (3) retain CAO authority to select the retirement-system actuary but shift determination of most actuarial assumptions to BIT, and (4) require BIT (and to an extent CRHBT) to select the MCERP executive director after the CAO oversees recruitment and short-listing.
The report summarized national literature warning against overrepresentation of stakeholders (government officials, labor, retirees) on trustee boards because some studies associate overrepresentation with lower investment performance. OLO's recommendation emphasized either increasing subject-matter experts on boards or ensuring balanced stakeholder representation; the analysts suggested that, if starting the boards from scratch, a majority of unaffiliated subject-matter experts would be preferable.
Committee members probed comparative performance. Mr. Trumka said historical performance over the past decade put the BIT in the top quartile and the CRHBT in the second quartile, but recent year-by-year data were not always available to his review. Council Member Katz and Council Member Evans expressed concern about stakeholder representation and the practical effects of shrinking boards; OLO said term lengths and ex officio seats vary and that board membership dynamics are a judgment call for the council.
Next steps: OLO said trustees and the CAO were invited to submit written comments and the committee asked for additional comments by the end of January. Chair Stewart reminded members of a public hearing on the transcript-referenced "Bill 20 eight-twenty 4" scheduled for Jan. 26 and that the committee will take up the bill on Feb. 5.
The committee will use OLO's report and submitted trustee/CAO comments when considering any legislative changes to the county code.
