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Trouble at VRS: 'Board Needs to Get Its Act Together'
EDWIN BURTON
GUEST COLUMNIST
Sunday, August 14, 2005
Charlottesville. How can a $260,000 severance payment to a retired official go unnoticed by the Board of Trustees of the Virginia Retirement System? Good question.
Forrest Matthews announced his re- tirement in December of 2004. Normally, the Board at VRS has appointed an interim di- rector immediately upon the announced departure of a director (or chief investment officer) of the agency. Indeed this has happened five times since 1993. Only in the Matthews case was an interim director not appointed. At three separate Board meetings there was a contentious discussion of hiring an interim, and at each meeting only two of the nine trustees supported the position of hiring an interim.
It is curious that the Board would break with tradition in this single case, but in no other.
An interim director would have had to approve the payment connected with Matthews' departure and would have had no incentive not to immediately report a severance payment of this magnitude to the Board. I doubt that anyone in the history of state government in the Commonwealth of Virginia has ever received a severance payment upon retirement. An interim director would have picked this up and reported it to the Board.
THE SECRETIVE nature of the severance payment is reflective of some deeper problems at VRS. Much happens behind the scenes and arrives at the Board after key decisions have already been deliberated and made. Over the past few years the Board has, little by little, ceded much of its deliberative activity to its chairman and to its committees.
The charter for the Administrative and Personnel (A&P) Board Committee (essentially the executive committee of the Board) is so broad that many of the most significant Board decisions are debated, if at all, by the two members that currently comprise the A&P Committee. The other seven members await the recommendation of the A&P committee on many important issues. This is silly. All nine trustees should participate in most of what is pushed off to the A&P. Heaven knows, the Board is not pressed for time on its usually thin meeting agendas.
The Board's by-laws could be interpreted as prohibiting a member from responding to any questions about the VRS, whether they come from members of the public or from the press. The good idea, that the chairman is the sole Board spokesman, has been stretched to the bad idea, that Board members should keep their mouths shut when asked about the VRS. Only the chairman should speak on behalf of the Board, but individual trustees should be free to express their personal opinion about VRS policy at any time and to anyone. Why would the by-laws want to stifle the personal opinions of any trustee? What public interest would that serve?
Board meetings devote an inordinate amount of time to discussions of things for which either: (1) there is no decision to be made, or (2) the decision to be made is mandated by law so there is nothing really to deliberate. Major issues and discussions are sidetracked to committees and the Board meetings (read the minutes of one of the these meetings and you will see) rarely take up important and significant matters, other than to simply, wordlessly ratify something deliberated earlier in one of the committees.
VRS HAS BEEN a leader in the public pension arena in the past. The investment staff is arguably the finest in the country. There are many talented and dedicated employees within the administrative side of the agency. The current and past several Governors have been very supportive of the VRS since the transition of the mid-1990s. The General Assembly has been consistently supportive and helpful to VRS. It is not as if we live in a bad environment. We live in a good environment.
However, the Board needs to get its act together. It should:
Take the policy deliberations away from the committees and place them before the Board where they belong.
Avoid executive sessions.
Put on the agenda the issue of restraining the growth in the costs of running the agency and the growing army of employees at VRS.
Put the agency back under one roof and review space utilization at 1200 Main Street.
Meet at least monthly, with real discussion about VRS investment policies.
Finally, and most important, the Board needs to quit worrying about how things are going to look to the press, to the legislature, and to the outside world. The Board should simply do the right thing as the trustees see it and let the chips fall where they may. If the Board does that it can best serve the beneficiaries of the system and the taxpayers of the Commonwealth, and the VRS can regain its stature as a leader in the public pension arena.
Edwin T. Burton, a UVa economics professor and member of the VRS Board of Trustees, chaired the Board from March, 1997, until March, 2001.