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What is the legislative solution to State Auditor Mike Harmon's August 27, 2019, finding that the Kentucky Retirement Systems and Kentucky Teacher Retirement Systems have "abdicated their responsibilities under the Open Records Act," as well as specific duties assigned to them by law in 2017's SB 2 "to improve transparency regarding the administration of the [retirement] systems?"

The solution is to statutorily absolve the systems of those recently imposed duties.

That's what 2020's SB 219 does.

It has been described as "one of the worst anti-transparency bills" introduced by lawmakers and a "Hedge Fund & Private Equity lobbyist dream."

The current law requires the systems' boards of trustees to "post . . . to the retirement systems' Website and make available to the public" thirteen specifically described information sets. This includes "all contracts or offering documents for services, goods, or property purchased or utilized by the systems," "the dollar value of fees and commissions paid to each individual manager or partnership," and "the dollar value of any profit sharing, carried interest, or any other partnership incentive arrangements, partnership agreements, or any other partnership expenses received by or paid to each manager or partnership"

SB 219 amends these statutes to require the retirement systems to "disclose by *asset class, instead of at the manager level,* the dollar value of all fees and commissions paid to managers and partnerships, including but not limited to profit sharing, carried interest, and any other partnership incentive arrangements."

SB 219 mandates public availability of contracts and offering documents, as well as all renewals or modifications of those contracts for services, goods, or property *if* purchased or utilized by the retirement systems *on or after July 1, 2017.*

Finally, SB 219 requires that information withheld by the retirement systems under the existing open records exemptions be *redacted under a process approved by the retirement boards.*

SB 219 is thus, as it is somewhat cynically described, the retirement systems' response to Auditor Harmon's criticism of its failure to comply with existing laws governing its transparency obligations.

Because SB 219 replaces the requirement that the retirement systems disclose the dollar value of fees and commission *by individual investment manager* with the requirement that the retirement systems disclose fees and commissions in the aggregate (*by asset class*), the bill divests the public of the ability to determine which investment managers impose excessive fees and thus breach their fiduciary duties.

Because SB 219 expressly limits the duty of disclosure to contracts "*purchased or utilized on or after July 1, 2017,*" the retirement systems avoids future criticism that the Kentucky's open records laws governed pre-July 2017 contracts and were therefore subject to inspection to the extent required by pre-existing open records requirements.

Because SB 219 authorizes the retirement systems to redact information in post-July 2017 contracts "*under a process approved by the retirement boards,*" the retirement systems can legally yield their decision making duties relative to redaction of contracts to investment managers — a practice that the Auditor sharply criticized.

The retirement systems' response to the Auditor's special examination criticizing their lack of transparency is to be *less* transparent. Should SB 219 pass, the retirement systems will succeed in insulating themselves from future criticism from the Auditor, the media, and the public by means of this legislative fix.

In the final analysis, it appears the retirement systems *are* the servants of the investment managers rather than — as envisioned by Kentucky's open government laws — the people.


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