April 24, 2014 Dawson Conference Room, Albemarle Building 325 N. Salisbury Street, Raleigh, North Carolina 10:00 a.m. Present: Absent: Mr. Michael Kennedy (Chair) The Hon. Nelson Dollar The Hon. Rick Glazier The Hon. Floyd McKissick Dr. Linda Combs Mr. Mark Jewell Mr. Greg Gaskins Mr. Neal Triplett Professor Rhoda Billings Mr. Charles Perusse The Hon. Ralph Hise Consultants: Mr. Steve Cummings, CEO, Hewitt EnnisKnupp Ms. Nancy Williams, Partner, Hewitt EnnisKnupp Ms. Amy McDuffee, Associate Partner, Hewitt EnnisKnupp Staff: Mr. Kevin SigRist, Chief Investment Officer, North Carolina Department of State Treasurer Mr. Bryan Lewis, Chief Administrative Officer, Investment Management Division, North Carolina Department of State Treasurer Mr. Jay Chaudhuri, General Counsel and Senior Policy Advisor to the State Treasurer, North Carolina Department of State Treasurer Mr. Blake Thomas, Assistant General Counsel, North Carolina Department of State Treasurer Mr. Andrew Holton, Deputy Chief of Staff & Legal Counsel, North Carolina Department of State Treasurer Ms. Mary Laurie Cece, Legal Counsel, North Carolina Department of State Treasurer
Mr. Schorr Johnson, Public Information Officer, North Carolina Department of State Treasurer Ms. Cindy Esparragoza, Executive Assistant, North Carolina Department of State Treasurer Mr. Tony Solari, Government Affairs Director, North Carolina Department of State Treasurer Mr. Bill McGee, Legislative Liaison, North Carolina Department of State Treasurer Ms. Christina Strickland, Legal Counsel, North Carolina Department of State Treasurer Mr. Steve Toole, Director, Retirement System Division, North Carolina Department of State Treasurer Mr. Sam Watts, Policy Analyst, Retirement System Division, North Carolina Department of State Treasurer Ms. Melissa Waller, Chief of Staff, North Carolina Department of State Treasurer Guests in Attendance: Mr. David Vanderweide, North Carolina General Assembly Fiscal Research Division Mr. Mitch Leonard, State Employees Association of North Carolina Mr. Jonathan Owens, State Employees Association of North Carolina Mr. Emery Dalesio, Associated Press Mr. David Ranii, Raleigh News & Observer Ms. Melinda Baran, Trustee, N.C. Supplemental Retirement Board Ms. Caroline Husa, Aon Hewitt AGENDA ITEM CALL TO ORDER Mr. Kennedy delayed the meeting for 15 minutes in order for the Commission members to read the minority report and to review the executive summary of a report issued by Benchmark Financial Services and the State Employees Association of North Carolina. Mr. Kennedy called the meeting to order at 10:15 a.m. AGENDA ITEM CONFLICTS OF INTEREST STATEMENT Mr. Kennedy read the Conflict of Interest Statement to the Commission members. There were no conflicts of interest noted. AGENDA ITEM APPROVAL OF MINUTES FROM THE APRIL 10, 2014 MEETING
Mr. Kennedy introduced the minutes from the April 10, 2014 meeting. Rep. Dollar made a motion to approve the minutes of April 10, 2014. Seconded by Dr. Combs. MOTION CARRIED AGENDA ITEM RECAP OF LAST MEETING AND OUTCOMES Mr. Kennedy summarized the previous meeting. He described the two governance options that the Commission considered most closely: a sole trustee with an enhanced investment advisory committee and a board of trustees. He recalled that the discussion focused on these options from three perspectives: risk management, accountability and sustainability. He noted that most Commission members were comfortable with either structure but that a slight majority favored a board of trustees with traditional fiduciary responsibilities. He acknowledged that a minority of Commission members held strong views and wished to include a minority statement in the Commission s report. Mr. Kennedy felt that the draft report accurately captured the Commission s discussion and effectively represented the majority and minority view points. He noted that there were still several governance features awaiting final decision and stated that the Commission would formally vote to transmit the report with amendments before the close of the meeting. AGENDA ITEM REVIEW OF TODAY S AGENDA Mr. Kennedy asked Amy McDuffee of Hewitt EnnisKnupp (HEK) to go over the agenda. Ms. McDuffee stated that the focus would be to discuss the list of governance features still awaiting resolution. AGENDA ITEM REVIEW OF SECOND DRAFT IFGC REPORT TO THE STATE TREASURER Ms. McDuffee stated that the first item for discussion involved whether former legislators should be able to sit on the proposed board of trustees. The Commission members agreed that current legislators should not be eligible to serve but that retired legislators should be eligible, pending the State s standard six month cooling off period. The Commission members next discussed the amount of compensation to be allowed for board members and chose to mirror the compensation language for the State Health Plan Board of Trustees.
Ms. McDuffee noted that the Commission had discussed but not reached a conclusion on the issue of limited liability for board members. Blake Thomas, Assistant General Counsel for the North Carolina Department of State Treasurer, explained that the Supplemental Retirement Board had special statutory language limiting liability to instances of gross negligence. Sen. McKissick asked about liability insurance for board members. Mr. Thomas explained that the Department had investigated such insurance and found it to be quite expensive. The alternative for the Supplemental Retirement Board was to limit liability in statute. The Commission members agreed that the proposed investment board should receive the same statutory limits to liability as the Supplemental Retirement Board. Mr. Thomas asked whether the State Treasurer should have a higher standard of care than other board members. The Commission members felt that the Treasurer should have different duties but be subject to the same standard of care. Ms. McDuffee noted that the Commission still needed to reach a conclusion about whether the proposed board of trustees or the State Treasurer should appoint the Chief Investment Officer. The Commission members agreed that the State Health Plan provided a good model, and determined that with respect to the North Carolina Retirement Systems Investment Program, the State Treasurer should appoint the CIO upon consultation with the proposed board of trustees. Ms. McDuffee asked if there were other governance features that the Commission members wished to discuss. Mr. Kennedy asked to revisit the question about the structure of appointments and recommended that the Commission recommend a single option for consideration rather than two preferred options. The Commission members agreed and decided on a model that would have the State Treasurer as the chair ex officio, the Retirement System Director as a member ex officio, and appointees by the Governor, the State Treasurer, the President Pro Tempore and the Speaker of the House. Those six members would then meet to appoint the other three members. After few clarifying questions from the Commission members, Mr. Kennedy asked for discussion about the minority statement. Dr. Combs and Mr. Perusse expressed their strong support for the minority viewpoint. Rep. Glazier reiterated his strong support of the minority position. Sen. McKissick acknowledged the minority viewpoint but stated that he had equally strong sentiments about the majority viewpoint.
Prof. Billings, Mr. Gaskins and Mr. Triplett expressed some hesitation about some of the characterizations of the minority statement and stated that they didn t feel that the minority s representation of the majority s deliberation appropriately captured their position. Representative Dollar agreed and asked if a response statement to the minority statement could be included in the report. Mr. Kennedy stated that would be in order. Mr. Kennedy asked Ms. McDuffee if the report could better highlight some of the areas around which the Commission had strong consensus, specifically around salary competitiveness, levels of autonomy and enhanced transparency. AGENDA ITEM APPROVAL TO ISSUE AND TRANSMIT THE IFGC REPORT TO THE STATE TREASURER Sen. McKissick moved to approve the issuance and transmittal of the report pending the amendments discussed in the meeting. Dr. Combs seconded the motion. AGENDA ITEM NEXT STEPS RELATING TO THE ISSUANCE AND TRANSMITTAL OF THE IFGC REPORT MOTION CARRIED Andrew Holton, staff member with the Department of State Treasurer, thanked the Commission members on behalf of the State Treasurer and shard her appreciation for their thoughtful and deliberate work. He stated that Hewitt EnnisKnupp would make the changes to the report and then provide a final version to the Commission members by April 29. Mr. Kennedy would then transmit the report to the State Treasurer on the Commission s behalf. Following receipt of the report, Mr. Holton stated that the State Treasurer would review the report and meet with legislative leadership to assess how many of the recommendations would be viable for consideration in the upcoming short session of the General Assembly. He indicated that the Department would let the Commission members know about the timeline for next steps. AGENDA ITEM OTHER BUSINESS Rep. Dollar thanked his fellow Commission members. He stated that he liked the Commission format for discussing major policy issues. He appreciated the diverse views and tremendous expertise represented on the Commission. He thanked Hewitt EnnisKnupp in leading the group through difficult materials and for their work providing background and context to the Commission. He applauded the State Treasurer for assembling the group and expressed his hope that state government could do more of this type of deliberation on major issues.
Sen. McKissick agreed and commended Mr. Kennedy for being an even-handed Chair and keeping the group on schedule. He, too, thanked Hewitt EnnisKnupp for their guidance. AGENDA ITEM PUBLIC COMMENT Mr. Kennedy opened the floor for public comment. Melinda Baran noted a recent report criticizing the investment governance structure and stated that she believed that having a board of trustees would have insulated the State Treasurer and the Department from that kind of criticism. AGENDA ITEM ADJOURNMENT Mr. Kennedy stated that he viewed the North Carolina Retirement Systems Investment Program as one of the best in the country. He noted that the State was addressing this issue from a position of strength and that the Commission recommendations would help make the Program more sustainable. He emphasized the importance of increasing the resources for the investment management efforts and stated that was his primary concern for the Program. Mr. Kennedy thanked Hewitt EnnisKnupp for their work consulting with and facilitating the Commission. He thanked the Commission members for their collaborative spirit and engagement. He thanked the State Treasurer for convening the group and for seriously considering governance issues. Representative Dollar made a motion to adjourn the meeting at 11:45 a.m. Representative Glazier seconded the motion. APPROVED BY: MOTION CARRIED