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The Honolulu Advertiser
Posted on: Thursday, January 30, 2003

Retirement investment deal at closed meeting is void

By Johnny Brannon
Advertiser Staff Writer

A state board that oversees retirement investments for public employees has rescinded a controversial deal with a new savings plan administrator because the board violated Hawai'i's open-government law when it awarded the contract.

The Deferred Compensation Plan board of trustees illegally met behind closed doors last September to change the methodology for evaluating proposals that four companies submitted, newly appointed board chairwoman Kathy Watanabe said.

"This is the time to clear the air, to make right what was done wrong," she told the board's six other members at a public meeting yesterday, after they discussed the violation for several hours in a private session.

Trustee Carol Raber characterized the transgression as an inadvertent mistake.

"I believe the board acted in good faith and in the best interest of participants," she said. "We crossed our T's; we just missed one dotting of the I. That's what we'd like to cure."

The board later went behind closed doors again to re-evaluate the four proposals. The state will try to negotiate a new contract with the top-ranked company, which will not be publicly identified until an agreement is signed.

Some 43,000 state and Neighbor Island county employees are enrolled in the plan, through which they choose to have money deducted from their paychecks and invested for retirement. The plan administrator manages enrollment and record-keeping but does not select investments or directly handle money.

The contract award has been controversial for several reasons. The current administrator, Hawai'i Benefits Inc., has managed the plan for more than 20 years, and some beneficiaries did not welcome a change.

"We're very happy with Hawai'i Benefits, and we're we're worried that Hawai'i residents will lose their jobs," said state judiciary employee Pauline Akina, who presented the trustees with a petition signed by 80 co-workers.

She and others are also concerned because the company that won the new contract, CitiStreet LLC, is half-owned by Citigroup, a top lender to collapsed energy giant Enron and a target of a major federal fraud investigation.

But others wonder if the selection process has become politicized, noting that the Hawai'i Benefits board of directors includes Big Island rancher and security company owner Larry Mehau, a longtime powerhouse in Hawai'i politics.

State airports director Davis Yogi, who was chairman of the deferred compensation board when it chose CitiStreet, has said that the trustees were aware of the Citigroup controversy when they evaluated the proposals and anonymously ranked them.

Yogi declined to comment yesterday on the board's September closed meeting, which the attorney general's office and procurement officials agree violated the state "sunshine law" that requires certain government decisions to be made in public.

CitiStreet spokesman Mike Bezdek said the company operates independently of Citigroup and would not be effected by the outcome of the fraud probe.

"Whatever happens in that case would have no bearing whatsoever on CitiStreet," he said, adding that the trustees were right to rescind the company's contract and review the proposals again.

"It sounds perfectly sensible," he said. "If you find a 'sunshine' violation in the proceedings, I think they're obligated to reconsider. I think it's logical and fair."

He said the company planned to open a Honolulu office that would employ 28 people, more than Hawai'i Benefits does.

Hawai'i Benefits challenged the award to CitiStreet in part because of the violation of the sunshine law, but also because the change to the evaluation process allegedly violated the terms of the state's request for proposals.

The original scoring process favored Hawai'i Benefits, but the change to a "ranking" system did not, according to the company's written protest.

"For whatever reason, Yogi did not want HBI to be retained as the plan's third-party administrator and he was doing all he could to prevent HBI's renewal," the document states.

Another unsuccessful bidder, Great-West Life and Annuity Insurance Company/Benefits Corp., filed an unrelated challenge, which the board dismissed yesterday.

Hawai'i Benefits president Mike Moss said the board's decision to rescind the CitiStreet contract left him cautiously optimistic.

"It's a good start, but I'm a little bit concerned," he said. "It sounds like they're going back to the middle of the process. Instead of part A, they're going back to part F."

The state has up to 90 days to negotiate a new contract with the top-ranked bidder.

The award is subject to challenges from the other bidders, however.

Reach Johnny Brannon at jbrannon@honoluluadvertiser.com or 525-8070.