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Thread: Administrative Costs

  1. #1
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    Administrative Costs

    We are facing some tough budget times in North Dakota and we are looking for ways to “prove our worth” so to speak. Here in ND we need legislative approval each biennium for all salaries, operating expenses and capital asset purchases (I’ll call these ‘overhead costs’). We have “continuing appropriation authority” for investment management expenses such as manager fees, consulting fees and custodian fees and due diligence travel expenses, as well as for benefit and refund payments and pension plan related consulting expenses (actuary, legal, etc.). So I have some questions.

    1. At what level are you required to receive legislative approval for your expenses?
    2. Do you receive any state general funds to cover your expenses or are your expenses covered by fund assets/earnings (special funds)?
    3. As a percentage of assets under management, what is the total of your ‘overhead costs’ (salaries, operating and capital assets expenses)?

    Thank you in advance for your help!

    Connie
    __________________________________________________ __________________________________________________ __________
    Connie L. Flanagan | Fiscal & Investment Operations Manager | ND Retirement and Investment Office | ND State Investment Board
    3442 East Century Avenue | PO Box 7100 | Bismarck, ND 58507-7100 | phone 701-328-9892 | fax 701-328-9897 | e-mail cflanagan@nd.gov

  2. #2
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    Connie,

    You have asked a question near and dear to our hearts here at Teacher Retirement System of Texas. I would be interested if you would be willing to share responses you receive. Our situation is that the assets of the fund are administered by the Board. From 1937 until 1995, the System adopted and administered their budget with no oversight from the State Legislature. In 1995, due to several questionable investments and purchases by the Board, the Legislature pulled the System into the Appropriations process by appropriating State General Revenue Funds to administer the System. That lasted one biennium, before they changes the method of finance for those appropriations back to the Pension Trust fund. Technically they have no authority to appropriate those funds since by constitution that authority lies with the Board. Politically, however, since that time the Board has abided by the “appropriation” made by the Legislature, since the legislature does control the investment authority and makeup of the Board. There has been one occasion in the past decade where the Board voted to exceed the appropriations made by the legislature and that was done after a lot of educating of the Leadership as to the need. It is something we may be facing in the current biennium as well. The Board clearly has the authority to do so under the Constitution, but exercising it can come at great political peril. We would love to get back to the pre 1995 situation where it is totally left to the Board, but that is a big hill to climb.

    I hope this is some help.

    Regards,

    Ken Welch
    Deputy Director
    Teacher Retirement System of Texas
    (512) 542-6405

  3. #3
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    Connie;
    At the Wyoming Retirement System (WRS) our administrative expenses have to be approved in the state budget, similar to your situation.

    We receive no general funds; all money comes from member contributions and investment earnings (other funds). The budget provides authority for us to expend our money for our expenses. “Mother, may I?”

    Like you, our investment manager expenses are not part of the budget, nor are the pension payments.

    In addition to dollars, the budget controls positions (headcount).

    Our administrative expenses equate to about 8 or 9 basis points of assets under management in any recent year. It includes the salaries of the investment team and some related investment contracts, like some legal and consulting services, but not actual money management costs.

    The issues involved have created some mis-match between the responsibilities of the retirement board and the related authority of the board. We’ve had some success in getting many of our desires “funded” (authorized) by the legislature by having the retirement system report to a single home committee, rather than having WRS testify to various committees depending on the issue. Our home committee is the joint appropriation committee, which is the same committee that makes recommendations on agency budgets. So over time they get to know us and we get to know them and we have been able to work most issues satisfactorily, although not all. The board chafes about relatively non-competitive investment team compensation and some other headcount and salary limits in customer service and finance/accounting.

    Hope this is helpful and hope to see you in Savannah!

    Regards,
    Dave Swindell

  4. #4
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    Good morning Connie,

    I will attempt to answer your questions below, however, I must warn you, it is my first year as Budget Manager for the State Board. I am copying Robert Copeland, our SOO, just in case I miss anything.

    1). We actually receive “legislative approval” for our Budget through a “board of trustees” that include the Governor of the State, Rick Scott as well as the CFO, Jimmy Patronis and the Attorney General, Pam Bondi. Generally, by the end of May we have presented our Budget for the fiscal year which runs from July 1st to June 30th each year and receive approval at that point. Once it is approved we need not seek further approval throughout the year.

    2). As far as I know, we do not receive any state general funds to cover our expenses, our expenses are covered by fund assets/revenue earnings.

    3). As a percentage of our AUM, our costs/expenses (Salaries, Operating costs, etc.) is at 2.26% for FY 2018-19.

    Let me know if you have any other questions that I can answer. Thank you.

    Best regards,

    Jennifer J Bass
    Budget Manager
    State Board of Administration
    1801 Hermitage Blvd, Suite 100
    Tallahassee, Florida 32308
    850-413-1062

  5. #5
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    Connie, see responses to your questions below from MN State Board of Investment. Just some clarification on MN State Board of Investment. MN SBI manages the investments for Minnesota’s PERA, TRA and MSRS retirement systems plus we have approximately 400 fire reliefs and numerous trusts and OPEB’s we manage money for. In addition, we manage the State’s treasury dollars. In total, we have about $85 Billion in assets under management. We do no benefit administration. See answers below to your questions.

    We are facing some tough budget times in North Dakota and we are looking for ways to “prove our worth” so to speak. Here in ND we need legislative approval each biennium for all salaries, operating expenses and capital asset purchases (I’ll call these ‘overhead costs’). We have “continuing appropriation authority” for investment management expenses such as manager fees, consulting fees and custodian fees and due diligence travel expenses, as well as for benefit and refund payments and pension plan related consulting expenses (actuary, legal, etc.). So I have some questions.

    1. At what level are you required to receive legislative approval for your expenses? We technically receive legislative approval each biennium from the legislative for all funds. The only ones they really look at or ask us about is the General Fund dollars that we receive. We have a budget setting process that is fairly intense and ultimately must be approved by our Board each year.
    2. Do you receive any state general funds to cover your expenses or are your expenses covered by fund assets/earnings (special funds)? We do receive $139,000 per year in General Fund Support. The $139,000 we receive is to manage the General Fund portion of the State’s treasury account. The General Fund portion of the State Treasury Account has been approximately 4 to 5 Billion per year the last few years. The $139,000 has been set at the same amount for the last 6 years. For all other funds, we bill back actual expenditures to each plan based upon average funds under management for the quarter. The receipts are received in a dedicated receipt account. We do a pre-bill to the 10 Defined Benefit accounts and the 2 DC accounts that invest money with us at the beginning of each fiscal year. At the end of the fourth quarter, we true up with the 10 DB and the 2 DC accounts bringing our Dedicated Receipt account to 0.
    3. As a percentage of assets under management, what is the total of your ‘overhead costs’ (salaries, operating and capital assets expenses)? Overhead only no Investment Management Expenses: Last fiscal year we were at .0057%. Our 10 year average is .0055% and our five year average is .00551%

    Thank you in advance for your help!


    Paul Anderson, CPA
    MN State Board of Investment
    651-297-2287

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    Hi Dave and Connie,

    I’ve included below responses from the State of Wisconsin Investment Board (SWIB). We are responsible for investing the assets of the Wisconsin Retirement System. Our sister agency, The Department of Employee Trust Funds administers the benefits of the WRS. ETF’s budgeting process differs from SWIB’s.

    1. At what level are you required to receive legislative approval for your expenses?
    SWIB’s budget authority has been delegated to its board, and we are required to receive approval every fiscal year (July-June) for our operating budget (headcount, salaries/incentive compensation and operating expenses). SWIB also provides the board a projection of ‘investment related expenses’ for the fiscal year.
    2. Do you receive any state general funds to cover your expenses or are your expenses covered by fund assets/earnings (special funds)?
    All expenses are covered by the fund assets/earnings
    3. As a percentage of assets under management, what is the total of your ‘overhead costs’ (salaries, operating and capital assets expenses)?
    1.0 – 2.0 bps

    Please let me know if you have any questions.

    Thank you!

    Heather Dobson
    Senior Advanced Financial Accountant

    121 E. Wilson St., Madison WI 53703
    P.O. Box 7842, Madison WI 53707
    (p) 608.267.2863
    heather.dobson@swib.state.wi.us

  7. #7
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    1. At what level are you required to receive legislative approval for your expenses? Our fund has its own board of trustees who is responsible for approving the annual operating and capital budget. We do have a legislative oversight committee in Ohio that has responsibility for reviewing the budget as well as other policies of each of the Ohio public pension funds, but they do not have approval authority. Three of our board members are appointed from the legislature – one from the Senate & House, one from the Treasurer, and one from the Governor, and one member is a designee from the Superintendent of Public Instruction. All other board members are elected and represent the active and retired members.
    2. Do you receive any state general funds to cover your expenses or are your expenses covered by fund assets/earnings (special funds)? No state funds are received to cover expenses.
    3. As a percentage of assets under management, what is the total of your ‘overhead costs’ (salaries, operating and capital assets expenses)? We typically look at the cost of investment management (internal management and external fees) as a percentage of assets under management which was 35 basis points. Using only operating costs (internal investments and administration) plus capital budget, this represents about 15 basis points for us.

    Lynn A. Hoover, CPA | Controller
    STRS Ohio
    275 East Broad Street, Columbus, Ohio 43215
    Office: (614) 227-2843 | Fax: (614) 744-3326
    HooverL@strsoh.org

  8. #8
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    We are facing some tough budget times in North Dakota and we are looking for ways to “prove our worth” so to speak. Here in ND we need legislative approval each biennium for all salaries, operating expenses and capital asset purchases (I’ll call these ‘overhead costs’). We have “continuing appropriation authority” for investment management expenses such as manager fees, consulting fees and custodian fees and due diligence travel expenses, as well as for benefit and refund payments and pension plan related consulting expenses (actuary, legal, etc.). So I have some questions.

    1. At what level are you required to receive legislative approval for your expenses? OPERS is not subject to legislative approval of its administrative budget or operating expense. However, we are required to submit our administrative budget to the Ohio Retirement Study Counsel (ORSC) 60 days prior to our Board’s approval. The ORSC has the authority to gather information for the legislature but not approval authority over any aspect of our operations.
    2. Do you receive any state general funds to cover your expenses or are your expenses covered by fund assets/earnings (special funds)? No, our administrative expenses are paid for by investment earnings.
    3. As a percentage of assets under management, what is the total of your ‘overhead costs’ (salaries, operating and capital assets expenses)? OPERS operating expenses (excluding depreciation) for 2017 totaled $104,255,931. Investment assets under management at the end of 2017 were $100,983,117,997. OPERS operating expenses as a percentage of assets under management for 2017 was 0.1%.

    Cathy Blalock
    Assistant Director – Financial Reporting
    OPERS
    614-227-0005
    cblalock@opers.org

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