Ky. retirement system board will improve oversight as audit recommends, director says

06/28/2011 04:28 PM

The Kentucky Retirement Systems will take the advice of state auditors and put into place more safeguards to prevent conflicts of interest with investment middlemen known as placement agents, the agency’s director said.

William Thielen, the retirement systems’ interim executive director, said the agency’s board will take steps to better oversee and disclose information about the hiring of investment firms, specifically when such placement agents are used.

Thielen said the board was pleased that the audit — which Luallen released Tuesday morning — didn’t show systemic or instances of kickbacks between those placement agents and KRS officials.

Luallen agreed in October to audit the retirement systems. That came after the Herald-Leader’s John Cheves reported last summer that the systems spent $13 million in fees on placement agents for investment firms since 2004.

The investigative journalism organization ProPublica first reported in 2009 about excessive payments of other retirement systems, such as New York, to placement agents.

While Luallen said her auditors found no proof of systemic wrongdoing, her office did forward information to the Securities Exchange Commission for further investigation.

Luallen said auditors found that the system’s former chief investment officer, Adam Tosh, failed to disclose in September 2009 that a placement agent was involved in in pushing for an investment — a violation of the system’s policy.

Luallen said her auditors contacted Tosh, who now works for a Connecticut investment firm Rogerscasey, but Tosh declined to talk.

Luallen issued 21 recommendations, including urging the General Assembly to include retirement system investment placement agents under the category of executive branch lobbyists who would be required to file disclosure forms with the state.

At the Tuesday morning press conference, Luallen said her auditors found that instances in which officials in Gov. Steve Beshear’s office didn’t exert undue influence over the Kentucky Retirement System by forwarding requests for meetings by some potential placement agents.

Beshear later issued a statement saying he was pleased that the audit found that the more than $13 billion system is “secure.”

“However, as I suspected, there are improvements which can and should be made to this system,” Beshear’s statement said. “The Auditor’s recommendations to improve transparency and accountability are well-reasoned and should be implemented quickly to assure the hundreds of thousands of Kentuckians who depend on this system that their retirement funds are handled in a wise and ethical manner.”

The system’s trust fund covers pension payments to roughly 36,000 retired state and local workers as well as active state employees.

- Video by Kenny Colston

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