ERS audit approved
By John Duchemin
Advertiser Staff Writer
Scrutiny of the state Employees' Retirement System grew yesterday as a proposed audit of the system cleared a state Senate committee and a Honolulu law firm announced plans to file a class-action lawsuit involving the $8.4 billion pension fund.
The Senate Labor Committee yesterday voted unanimously in favor of a resolution calling for the state auditor to investigate the investment decisions of ERS trustees charged with overseeing the system that pays pensions for more than 30,000 former state employees and beneficiaries.
"Serious questions still have to be answered," said Sen. Sam Slom, R-8th (Hawai'i Kai, 'Aina Haina). "ERS feels like they've addressed the issues, but they haven't."
Also yesterday, attorney Mark Davis of Honolulu law firm Davis Levin Livingston Grande said he plans to file a "major class-action lawsuit" today against the state over ERS. Davis refused to discuss details, saying he had to wait until the suit was filed this morning. He did say Mainland law firms are cooperating in the case.
ERS administrator David Shimabukuro said yesterday that ERS was not aware of the lawsuit and could not comment.
The moves come amid increased review of ERS after fund trustees in February went against their investment adviser's recommendation and retained an underperforming investment firm, 3Bridge Capital, whose principals include a former ERS administrator. The trustees voted instead to halve the assets under 3Bridge's control from $330 million to $165 million.
Legislators last month began pursuing the idea of an investigation into the management practices of the state pension fund, with Democrats and Republicans in the Legislature proposing a state audit into practices they believe are questionable, particularly the decision to retain 3Bridge Capital.
Former ERS administrator Stanley Siu is a partner and manager of business development for 3Bridge, which in recent years has been one of the worst-performing managers in the ERS portfolio. Trustees said Siu's connection with 3Bridge had nothing to do with their decision to retain the firm.
Legislators have said the trustees should have terminated 3Bridge, rather than leave an impression of indecisiveness or impropriety.
They also have expressed concern about the portfolio's recent performance.
The system has made money in 32 of the past 34 years, but has suffered since 2000 because of global stock turmoil and economic troubles. It has averaged 6.8 percent returns over the past five years, below its 8 percent annual target.
ERS finances are audited annually by an independent accounting firm, but that financial examination differs from the evaluation of performance and practices sought by the legislators.
ERS officials say a state audit of the system is unnecessary.
An audit "would only reconfirm the challenges that ERS trustees and staff are already acutely aware of and are in the process of addressing," said Toby Martyn, chair of the ERS board of trustees, in testimony to the Labor Committee.
Sen. Colleen Hanabusa, D-21st (Nanakuli, Wai'anae, Makaha), a frequent critic of ERS investment policies, said the fund's actions are in serious need of examination.
"ERS, for me, is in the same category as traffic cams," Hanabusa said, referring to the photo enforcement system recently killed by legislative repeal after a wave of public criticism.
The proposed state audit of ERS has cleared the state House of Representatives and now goes to the Senate Ways and Means Committee.
If approved by Ways and Means, the measure would need a full Senate vote for passage.
Reach John Duchemin at jduchemin@honoluluadvertiser.com or 525-8062.
