THE
State Employees Association of North Carolina, SEIU Local 2008 1621 Midtown Place, Raleigh, NC • www.seanc.org 800-222-2758 • 919-833-6436 • Circulation 55,000
February 2014
Pay Raise is Priority No. 1
• Vol. 32, Issue 3 Get Social with SEANC!
Dear Members, The General Assembly doesn’t return to session until May, but SEANC is already working on much-needed pay raises for state employees and retirees in the halls of the legislature and speaking out in the media on your behalf. SEANC is advocating for a 3-percent across-the-board increase for state employees and retirees in this General Assembly session, which starts May 14. We believe that the state can afford it because in a $20 billion or more budget — it’s just a matter of priorities. Now that the economy is improving, state employees and retirees should share in North Carolina’s prosperity just as we sacrificed pay raises during the recession. SEANC isn’t being coy about our pay raise request. My team and I have been on TV, in newspapers and on the radio letting the public and lawmakers know that in 2014 a pay raise is our top priority. Cope While teacher pay has received much of the attention so far, SEANC is dedicated to ensuring that ALL state employees and retirees get more money in their paychecks. Public employee pay raises should never be a partisan, political issue. State wages have been stagnant for a half-decade, with just a meager 1.2 percent increase since 2008. During this time, prices on everything from food to housing to medicine have increased, along with premiums for the State Health Plan. Failing to increase pay for state employees actually costs taxpayers in the long run, since workers eventually decide to retire or leave state service for more pay. Not only does the state lose that employee’s years of expertise, it also has to hire someone else and pay to train that person. In 2012, our state had an 11 percent turnover in state government which cost taxpayers $282 million. Last year, Gov. Pat McCrory proposed a 1-percent pay increase for all state employees, but that raise didn’t make it into the General Assembly’s budget. At the time, legislators blamed a Medicaid deficit for taking the money needed to fund raises. That is a preposterous red herring that unfairly makes state employees and retirees bear the burden of poor leadership in the General Assembly. It’s time for the General Assembly to put raises on the table first, rather than fund them as an afterthought. North Carolina’s workers and retirees always put North Carolina first. We are the people who work in wintry weather while others sleep. We are walking the cell block guarding dangerous criminals and working in hospitals to help people in need. Make no mistake about it! It’s time for the General Assembly to put North Carolina’s state employees and retirees first!
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Dana Cope, Executive Director
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RETIREMENT
SEANC Hires National SEC Expert to Conduct Forensic Investigation into Retirement Fund by
Toni Davis
SEANC Communications Director
SEANC has enlisted an independent, nationally known expert in retirement system forensics, Edward Siedle, to conduct a comprehensive review of the $83 billion state retirement system for conflicts of interest related to investments and potential violations of federal securities laws. Spillman Grice, chairman of the SEANC Retiree Council and a past SEANC president, said his council members unanimously recommended the hiring of Siedle to the SEANC Executive Committee out of a sense of duty to protect the retirement system not only for retired members, but for active state employees. “Given the treasurer’s new power to invest more of our money in risky alternative investments, like hedge funds, we felt the time was right to start this review. I don’t know if the rank-andfile SEANC member realizes the huge fee structure that these Wall St. money managers make. We’re talking about millions of dollars that could be used for COLAs and benefit enhancements,” continued Grice. Hedge fund managers are paid according to a “two-and-twenty” rule. Investopedia defines the two and twenty rule as “how hedge fund managers charge a flat 2 percent of total asset value as a management fee and an additional 20 percent of any profits earned.” SEANC’s action comes on the heels of a $1 million “placement agent” report requested and issued by state Treasurer Janet Cowell which focused on secret payments to intermediaries who helped
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The Reporter • February 2014
Scope of the Investigation
Benchmark Financial Services will focus on investigating: • Conflicts of interest related to investments • Total fees paid to investment managers and related expenses • Disclosure practices related to investments, including disclosure of investment fees, expenses and risks • Heightened risks related to non-traditional investments, including valuation and liquidity concerns • Use of disclosed and undisclosed registered and unregistered placement agents in connection with investments • Potential violations of federal securities laws
secure retirement fund business — referred to as “pay to play” by the Securities and Exchange Commission — during former Treasurer Richard Moore’s administration. Given the improprieties found in the treasurer’s report, SEANC’s Retiree Council and Executive Committee unanimously approved $65,000 for an investigative report through the present. Siedle is a former attorney with the Securities and Exchange Commission and has pioneered forensic investigations in the money management industry, involving over $2 trillion in assets. He has testified before Congress and served as an expert on mutual fund scandals like the Bernie Madoff trial and others. He also writes a Financial Watchdog column for Forbes and contributes to other national media outlets. His recent investigation of the $8 billion Rhode Island retirement system uncovered what amounts to a “license to steal” for Wall Street hedge fund managers. Siedle reported that managers take exorbitant fees and make mystery investments at the expense of workers who are counting on the fund to finance their retirement as well as taxpayers who are stuck footing the bill when it is mismanaged.
Last year, despite SEANC’s strong opposition, the General Assembly granted the state treasurer the ability to gamble with even more of the fund in so-called “alternative investments,” risky ventures such as hedge funds and real estate that often come with very high fees from Wall Street managers. Since 2000, the General Assembly has allowed investments in alternatives to grow from 5 to 34 percent of the retirement system and has no positive growth to show for it, while wasting millions of dollars on fees. SEANC has long advocated for a move away from a sole fiduciary system, where North Carolina’s State Treasurer has the lone authority to invest the more than $83 billion in the state retirement systems. North Carolina is one of only four states in the country that operates this way. “At $83 billion, the retirement system is four times the entire General Assembly budget. Given that only one person is in charge, it can’t hurt to take a second look,” said Grice. SEANC hopes to move investment decisions out of the hands of one person and into a board system that will provide checks and balances for the plan. tdavis@seanc.org, Twitter @ToniCDavis
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Toni Davis, Editor-In-Chief Jonathan Owens, Managing Editor Alicia Miller, Associate Editor Beth Dew, Associate Editor
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State Employees Association of North Carolina 1621 Midtown Place • Raleigh, NC 27609 Telephone 919-833-6436, 800-222-2758
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Advertising Policy
SEANC accepts advertising material from companies and persons seeking to communicate with SEANC members. Acceptance of this advertising does not indicate SEANC approval or endorsement of any representation that the message, product or service is as represented by the advertiser. SEANC accepts no responsibility and shall not be liable for any use of or reliance on any such information, product or service. SEANC is a private entity and is under no obligation to carry advertisements of any nature, political or otherwise, that may be viewed as contrary to the interests of the association and its membership.
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District 5 members Nick Fox, Johnny Burnette, Sunny Vanderblomen, Georgia Stapf, Dale Brittian and District 5 Chairman Tony Smith at the J. Iverson Riddle Developmental Center’s annual Christmas parade in Morganton on Dec. 5.
PHOTO SUBMITTED BY LORICE WORRELLS
PHOTO SUBMITTED BY TONY SMITH
MEMBER ACTION
District 59 held its annual Christmas Party at Western Sizzlin Steakhouse in Goldsboro on Dec. 2.
PHOTO SUBMITTED BY LYNN TUTHILL
District 65 adopted a brother and sister this Christmas through the Salvation Army Angel Tree Program. Pictured from left with the gifts are Lynn Tuthill, Jacqueline Caudill, Doris Wrighten, Debbie Jackson, Darlene McRoy, Helen Little, Lina Johnson, Cynthia Hart, District 65 Chairwoman Gloria Evans, Martha Peele, Debbie Austin and Laura Deans.
POSTMASTER Send address changes to: THE REPORTER 1621 Midtown Place Raleigh, NC 27609
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The Reporter • February 2014
PHOTO SUBMITTED BY LYNN TUTHILL
The Reporter, USPS 009-852 (ISSN 1069 2142), is published nine times a year in the months of February, March, April, May, June, July, September, November and December for $2.50 per year, per member, by the State Employees Association of North Carolina, Inc., 1621 Midtown Place, Raleigh, N.C. 27609. Periodicals postage paid at Raleigh and additional offices.
District 65 participated in the Ronald McDonald House of Eastern North Carolina’s Light-A-Luminary project. Money is raised for the house’s operating fund at Christmas. Pictured from left to right are Lynn Tuthill, Theresa Cieslinski, Joanie Tyson, Tammy Heller, Karen Simmons, Cynthia Hart, Lina Johnson, Debbie Austin, Laranda Boone and Doris Wrighten.
PHOTO SUBMITTED BY DOUGLAS WILSON
PHOTO SUBMITTED BY ANKE CAHOON
MEMBER ACTION
District 70 sponsored a float in this year’s Kinston Christmas Parade. Pictured are District 70 Chairman Douglas Wilson, Cheryl Thompson and Arvis Sutton.
PHOTO BY WENDY MULL
District 63 members donated food and other items to families in Martin, Hertford and Bertie counties as part of their annual Christmas event. Members Anke Cahoon, Marion Drake, Sherryl Dodge, J.E. Skinner, Alvin Lewis, and J.E. Benton and his wife, Dottie, delivered the boxes of food.
PHOTOS SUBMITTED BY LISA BURWELL
District 7 Chairman Henry Belada and his wife Suzanne Belada along with Norma Randall (left) delivered turkeys donated by district members to Burke United Christian Ministries for Thanksgiving.
District 66, located at Caswell Developmental Center in Kinston, gave back to the community during the 2013 holiday season. Items were collected and donated to the Friends of the Homeless Shelter in Kinston. Pictured at left are Jasper Newborn and District 66 Chairperson Mike Kollock. District 66 also donated $100 and collected wrapping paper for Caswell Developmental Center’s Operation Santa Claus Project, an annual fundraiser that ensures that every individual who lives at the center has a new present to open on Christmas morning. At right are members Evelyn Brown and Jackie Clemons.
The SEANC Store is now ONLINE! Visit
www.seanc.org/seancstore to purchase your SEANC gear!
Want to submit a photo from your district for inclusion in an upcoming edition of The Reporter? Email it to reporter@seanc.org and be sure to include the names of all participants pictured.
The Reporter • February 2014
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PUBLIC POLICY
The Truth About the Underperforming N.C. Retirement Fund The following is a guest column by SEANC Legislative Affairs Director Ardis Watkins that appeared in the Dec. 17 edition of the News & Observer.
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recent news release by the state Treasurer’s office reported that the $83 billion Teachers’ and State Employees’ Retirement System is outperforming its benchmark. The release claimed that the fund is “solid” and has “successfully navigated the market turbulence of the past few years.” The fund is indeed solid, but this is because of the monthly contributions from state employees and teachers as well as Watkins the willingness of the current legislature to fund the system appropriately. It is in no way solid due to the expert management of the system. The contention that the system is outperforming its benchmark is misleading. The system sets its own benchmark, so to beat it is meaningless. There are two ways to look at a retirement system: how well is it funded (assets vs. liabilities) and how it is performing (how investments pay off compared with other systems). Our system is well-funded because of the sacrifices made by state employees, teachers, retirees and the current legislature. Employees have continued to put 6 percent of their checks into the system each month even when the state put in nothing. Being well-funded because of the hard work and sacrifice of others is nothing about which the retirement system should crow.
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The Reporter • February 2014
What the retirement system should focus on is how its investment strategies and choices compare with its peers’ strategies and choices. The North Carolina retirement system is not meeting the benchmark of other public retirement funds, and that is an unpleasant reality. We see the severe underperformance of our fund when we compare it with other states’ funds. For the fiscal year ending in June, the average state retirement fund returned 12 percent while North Carolina’s earned 9.5 percent. If our investment choices had resulted in just average performance, that would’ve translated into an additional $2 billion for our $83 billion system. The “C” students made at least 12 percent. We aren’t asking the sole person in charge of our investments to be a straight-A student, but it’s unacceptable that we aren’t even a “C” student. As of June 30, North Carolina was ranked 43 out of 47 states reporting returns — an “F” in anyone’s gradebook. To understand whether an investment manager has earned his or her keep, investors use benchmarks to measure performance. At the simplest level, a benchmark can be the S&P 500 — or some other broad measure of the stock market. This is fine for a stock portfolio, but not appropriate for a more diversified portfolio that contains stocks, bonds and a host of other alternative asset classes. For a portfolio such as this, the common approach is to create a custom benchmark that is a blend of the returns of a range of asset classes. For example, the North Carolina retirement system has benchmarks for global equities,
fixed income, real estate, alternatives, credit and inflation. Each of these benchmarks is based on a formula using returns from these asset classes. These benchmarks are then combined to make an average “Total Pension Plan” benchmark. In North Carolina, these benchmarks change from year to year and are made largely at the discretion of the retirement system itself. As the system gets to create its own benchmarks, it shouldn’t come as a surprise that the fund often beats its benchmark. The underperformance problems of the fund come from a variety of sources. First, the retirement system pays close to $400 million in Wall Street management fees each year. These fees don’t account for all the underperformance, but they are not helping, and they certainly aren’t buying us stellar performance. Second, the treasurer has continued to increase alternative investments such as hedge funds, commodities and private equity. The performance of these asset classes has been mediocre, and they come with high costs and risks. Ultimately, though, the poor performance is largely due to poor investment decisions. Digging out of this underperformance will take time, but one way to start is to benchmark it against a reasonable performance measure — such as the average performance of U.S. state retirement funds. That way the retirement system will face long overdue scrutiny, and the treasurer’s office will concentrate on improving the system rather than issuing self-congratulating news releases based on artificially low performance measures. awatkins@seanc.org; Twitter @ArdisWatkins
PUBLIC POLICY
Quotes to Note
“We are very hopeful that it will be in the three percent pay range. We think the state budget can afford it, and we think it is the only fair thing to do seeing as there hasn’t been a significant pay raise in the past five years.” Executive Director Dana Cope in a Jan. 2 story on News14 Carolina, “Leaders discuss raises for state employees and educators”
“We know that we’re spending an exorbitant amount in fees. The wolves of Wall Street are circling around. There’s no question about that. The only prudent thing to do here is to look at the system and make sure that we protect our members’ interests.” Legislative Affairs Director Ardis Watkins in a Jan. 7 WRAL-TV story “SEANC hiring outside reviewer of pension system”
“We have entered a new era in which public sector workers demand full transparency regarding all investments, including hedge, venture and private equity holdings, and oppose Wall Street pillaging of public pension honey pots.” Edward Siedle, in the Jan. 5 Forbes.com article “North Carolina State Employees Union Hires SEC Expert For $83 Billion Pension Forensic Investigation”
“As a SEANC member for about 40 years, I am so proud to be a member of an association that stands up for its members. Thank you.” District 44 member Mike Latta in a note to Executive Director Dana Cope following the announcement of SEANC’s retirement investigation
“This is a big transition for anybody to leave state government to lose all those benefits” SEANC General Counsel Tom Harris in a Dec. 12 News & Observer article “Decker says changes at Commerce Department will affect 61 state workers”
FROM SOCIAL MEDIA On behalf of all the state employees who make NC work, we wish you a healthy and happy holiday. #ncgov #ncpol #ncga SEANC’s official Twitter feed (@seanc2008) in a Christmas Day tweet
@SEANC2008 @DanaDcope Thank you for all you do for the quality of life for all state employees. Appreciating you! District 60 member Hiawatha Jones (@sedovkey) in a Jan. 8 tweet The Reporter • February 2014
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Scholarship Season is Here!
Deadline is April 15 to apply for annual SEANC awards By Beth Dew
Communications & Events Assistant
One of the outstanding benefits of membership in SEANC is the association’s scholarship program. All active and associate members, their spouses and dependent children are eligible to apply based on financial need and merit. There are also member-only awards available to any member who is working full time and enrolled in at least six hours of undergraduate work or three hours of graduate work. Last year, 41 scholarships were awarded to students for use at two- and four-year institutions. Cassie Bagwell, daughter of District 38 member Cynthia Bagwell, received one of 26 $1,000 scholarships. She is majoring in Nursing at the University of North Carolina at Chapel Hill. Bagwell said she appreciates the assistance the SEANC scholarship program gave her in pursuing her goals. “If it weren’t for the scholarship I would be struggling more paying tuition,” she said.
Apply Today!
Applications for SEANC’s scholarships are available online at seanc.org/scholarship
District 40 member and NC Department of Public Safety Correctional Program Supervisor LaQuita Harris received one of nine $500 member-only scholarships which she used to pay for Sociology classes at Wake Technical Community College. She hopes to use her degree to further her career in correctional counseling, which includes assisting offenders with planning their futures and setting goals to help them transition back into society. Harris said the SEANC scholarship program is “a tremendous help.” SEANC scholarship applications must be sent to the District Scholarship Chairperson postmarked no later than April 15. The SEANC Scholarship Foundation Board reviews applications and announces winners by July 1. For more information, contact Beth Dew at (919) 833-6436. bdew@seanc.org; Twitter @ejdew