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CFO Sink Calls for Recommendation of SBA Reforms, Plans to Attend Investment Advisory Council Meeting

10/7/2009

CONTACT: Kyra Jennings or Kevin Cate, 850-413-2842
 
TALLAHASSEE - Florida CFO Alex Sink today sent a letter to Investment Advisory Council (IAC) Members outlining her three proposals to improve the oversight of the State Board of Administration (SBA) and protect Floridians’ retirement security.  CFO Sink informed the IAC Chair that she plans to attend the IAC meeting in December to personally present her oversight reforms to the Council.
 
“For more than a year, I have advocated for SBA reforms based on my personal experience as a business leader and the recent study of governance best practices that would strengthen the oversight of the SBA, in order to protect the $110 billion pension fund so many Floridians depend on for a secure retirement,” CFO Sink wrote.  “In my opinion, the SBA governance structure is long overdue for a change.  I look forward to presenting these oversight measures and answering any questions members of the IAC may have at your next meeting.”
 
CFO Sink recommended reforms to strengthen and enhance the oversight of the state’s public pension fund, including a proposal to expand the Board of Trustees, at last week’s Cabinet meeting.  Her motions were delayed by the other two members of the SBA Board, Governor Crist and Attorney General McCollum, who requested that the IAC review her proposed reforms and make recommendations. 
 
A copy of CFO Sink’s letter is attached and below:
 
October 7, 2009
 
Robert Konrad, Chair
Investment Advisory Council
6600 North Andrews Avenue, Suite 130
Ft. Lauderdale, Florida 33309
 
Dear Chairman Konrad:
 
For more than a year, I have advocated for SBA reforms based on my personal experience as a business leader and the recent study of governance best practices that would strengthen the oversight of the SBA, in order to protect the $110 billion pension fund so many Floridians depend on for a secure retirement.  At last week’s Cabinet meeting, I proposed three changes to bring a more modern, businesslike approach to the oversight of the SBA’s investment funds.
 
Instead of voting on these proposals, Governor Crist and Attorney General McCollum requested that the Investment Advisory Council (IAC) review my three proposed reforms and make recommendations to the SBA Board of Trustees at our December 8 quarterly board meeting.  Because of this request, I want to outline to the IAC these proposals along with a few thoughts on each recommendation.  I also plan to personally attend the IAC’s December 3 meeting to further discuss these reforms with the Council.
 
All three recommendations were validated by the recently released, Board-directed study summarizing best practices of 15 other state pension funds.  Interviews were conducted with representatives from these pension funds and with numerous private sector investment professionals by Trustees’ staff and SBA staff.  This governance study was presented to the IAC at your most recent meeting on September 24, and I hope each member will study the report in detail prior to your next meeting.
Below are the three recommendations I offered last week to strengthen the oversight and accountability of the SBA’s management of its investment funds:
  • Expansion of the Board of Trustees – I propose recommending to the Florida Legislature that the membership of the Board of Trustees be expanded, to include one or more members with extensive and relative investment experience or knowledge and one or more members who are a beneficiary or participant in the Florida Retirement System.  I have long argued that it takes more than three elected officials – none of whom are required to have prior relevant investment experience -- to oversee the $110 billion fund that our police officers, teachers and other state employees depend on for their financial future.

    We learned from the recent governance study that Florida’s pension fund board is smaller than most other pension system’s governing bodies, despite being the fourth largest pension fund in the country.  Most states do not include elected officials -- of the fifteen public pension plans that were reviewed in the study, none of them have a Governor or Attorney General on the board and only a handful have Treasurers, Comptrollers or Legislators.  Finally, most of the other states studied included on their boards members with financial expertise as well as fund beneficiaries.
  • Fiduciary Training – I propose requiring each Trustee and each member of the Audit Committee, Investment Advisory Council and Participant Local Government Advisory Council to undergo annual training in fiduciary responsibilities and associated ethical requirements relevant to their roles.

    There is a trend among other states to require fiduciary training for their public pension fund trustees. Especially given that currently the Board of Trustees is only made up of three elected officials with no financial background required, training that allows us to fully understand our fiduciary responsibilities and ethical requirements should be expected.
  • Regular, Independent Audits – I propose that the Audit Committee develop recommendations for regular, independent external audits of the SBA which will focus on financials, compliance, internal controls, and operations.  A regular audit schedule is standard practice both in the private sector and for public pension funds and can help ensure a high standard of accountability and oversight.
In my opinion, the SBA governance structure is long overdue for a change.  My recommendations continue to pursue the reforms I laid out in my 10 point plan in March of 2008 to improve the transparency, accountability and oversight of the SBA.  I look forward to presenting these oversight measures and answering any questions members of the IAC may have at your next meeting.
 
Sincerely,
 
Alex Sink
 
cc: The Honorable Charlie Crist, Governor
The Honorable Bill McCollum, Attorney General
John H. Hill, Jr. , Vice Chair, Investment Advisory Council
Beth McCague, Investment Advisory Council
Robert H. Gidel, Investment Advisory Council
John Jaeb, Investment Advisory Council
David J. Grain, Investment Advisory Council
Ash Williams, Executive Director, State Board of Administration