Outside auditors are recommending that the Ohio Public Employees Retirement System should pick the custodial banks to oversee billions of pension dollars – not the state treasurer – and system should hire the fund’s lawyers – not the state attorney general.

Debate rages on who should pick banks, lawyers for Ohio’s public pension funds

Such changes would require law changes by the Ohio General Assembly and likely will face push back from state officeholders.

“This proposal introduces risk to Ohio’s pensioners. For more than 80 years, the treasurer’s office has served as the statutory custodian of the public pension funds. We see no reason to change that,” said Brittany Halpin, spokeswoman for state Treasurer Robert Sprague. “Our office serves as an independent and accountable protector of these funds, and we remain committed as ever to ensuring the safety and security of the pensioners’ assets.”

AON Hewitt Investment Consulting said authorizing OPERS to select the custodial bank would save the system $15 million to $20 million in bank fees over five years.

AON also said state law mandating that treasurer make the pick and the bank be located in Ohio means OPERS is paying far more in fees than comparable pensions funds are.

Related: Pension fund to switch banks, again

OPERS unsuccessfully pushed back when then state treasurer Josh Mandel ordered a change in custodial banks in 2013.

And a 2010 switch under then state treasurer Kevin Boyce triggered an FBI investigation into how the contract was awarded. The investigation didn’t result in charges over the custodial bank contract but did uncover a separate kickback scheme involving the deputy treasurer, a lobbyist and two other men.

Related: How Ohio deputy treasurer pulled off biggest bribery scheme in treasury history

OPERS has long sought the autonomy to pick its own custodial banks and other pension fund directors agree that they’d like a bigger role in deciding which banks would best work for them.

“I’m in favor of those recommendations. I’ve been working on that for years,” said state Sen. Kirk Schuring, R-Canton, chair of the Ohio Retirement Study Council. “I think we should have a better system for selecting custodial banks that allows our systems to be a part of that, so they have a better connection to the custodial banks and hopefully get better service.”

Schuring said he also favors giving the pension funds more say in the selection of legal representation. “These are professional services that if you don’t have a direct relationship sometimes the quality of service can suffer,” he said.

The Ohio Attorney General is the lawyer for state pension funds, universities, offices and agencies. The AG appoints outside counsel for assistance as needed.

“Having the attorney general’s office hire the attorneys provides an important safeguard against conflicts of interest. We are able to obtain better legal rates for the pension systems, help manage their cases and provide oversight,” said Dave O’Neil, spokesman for Attorney General Dave Yost.

AON Hewitt Investment Consulting recommended the switches along with 55 other changes listed in a 157-page fiduciary performance audit reviewed Thursday by the Ohio Retirement Study Council.

Ohio’s five public pension systems have roughly $200 billion invested on behalf of 2 million workers, retirees and beneficiaries. The ORSC provides oversight and legislative recommendations for all five systems.

Another consultant, RVK, Inc., delivered an investment report for the first six months of 2019 for all five systems. Returns for the Ohio pension funds ranged from 10.5 percent to 12.5 percent. These returns slightly exceed or slightly trail the returns reported by the benchmarks used by the funds.

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