Senate approves bill for North Dakota RIO’s budget – Jamestown Sun

BISMARCK — The state Senate, in a 44-3 vote Wednesday, April 2, approved a bill related to the North Dakota Retirement and Investment Office’s budget after proposed amendments failed that would make the agency’s fiscal operations employees ineligible for the incentive compensation program.

Sens. Cole Conley, R-Jamestown; Sean Cleary, R-Bismarck; and Jeffery Magrum, R-Hazelton, were opposed.

The budget for the North Dakota Retirement and Investment Office includes an increase of about $3.5 million for salaries and wages and one additional internal auditor to support the agency’s increased workload, said Sen. Kyle Davison, R-Fargo. He said RIO’s budget also includes an increase in operating expenses of more than $1 million, a majority of which is due to about $800,000 related to information technology support services.

Davison said the Senate added a section that amends the Legacy Fund asset allocation plan to increase investments in infrastructure loans to political subdivisions by $50 million from $150 million to $200 million. Another section includes having RIO report to the appropriations committees during the next legislative session regarding its plan to internally manage 50% of the investments under the control of the State Investment Board.

RIO is responsible for coordinating the activities of the State Investment Board and the Teachers’ Fund for Retirement, according to RIO’s website. The State Investment Board has statutory responsibility for the investment program of several funds, including the Legacy Fund.

“Over the past two decades, the assets under management have grown from $4 billion in 2003 to $23 billion in the current biennium,” Davison said.

Cleary proposed amendments to House Bill 1022 before the bill was approved on the Senate floor.

One amendment included removing “fiscal operations” from North Century Code Chapter 54-52.5-5.04. Another amendment included having RIO staff provide at least one report to legislative management during each interim and a report to the appropriations committees during each regular session regarding the status of the incentive compensation program, the total amount of incentives paid to employees each year and the minimum, maximum and average payout per eligible full-time equivalent position.

The Senate failed to add those amendments to HB 1022 on a 14-33 vote.

During the 2023 legislative session, the state Legislature authorized RIO to develop an incentive compensation program for its investment and fiscal operations positions necessary for the management of funds under the control of the State Investment Board. The State Investment Board must approve annually the provisions of the program.

Cleary said “fiscal operations” was added to North Century Code Chapter 54-52.5-5.04 during the last session, which expanded eligibility of the incentive compensation program to staff who aren’t involved in investment decisions.

“By adding that last session, it’s my opinion that change shifted the program away from its stated purpose, which was rewarding investment performance for the folks making investments,” he said. “The question this amendment raises is pretty straightforward: Should the staff who don’t make investment decisions receive bonuses related to the investment results? Members of the State Investment Board raised similar concerns last year, citing inequity across state roles as we are applying a program made for investment analysts to the executive director position and some accounting and fiscal staff positions.”

The incentive compensation program could allow the top two RIO officials to earn up to 100% of their salaries as incentive compensation, although officials in the office said that might not happen every year.

The annual salaries for the RIO executive director and chief investment officer are $237,400 and $312,000, respectively.

The documents of the incentive compensation program say it is designed to help attract and retain talented investment professionals. The program is also designed to help RIO earn the highest possible investment returns at a reasonable cost and at controlled levels of risk and to reward long-term investment performance.

Conley said Cleary’s amendments should be supported because the top two positions in RIO have the potential to earn up to 100% of their salaries as bonuses.

Cleary said he previously proposed an amendment that failed when the bill was in the Senate Appropriations-Human Resources Division to cap the maximum incentives at 75% of an investment position’s salary for the incentive compensation program. He said some bonuses are up to 100% of the salaries, which are “pretty excessive.”

“Last legislative session, this change was made in conference committee and … maybe the vast majority of this chamber was aware that we were starting this bonus program that offers some bonuses up to 100% for some staff, but I certainly wasn’t,” he said.

The incentive compensation program provides incentive compensation as a percentage of regular compensation, with 80% of the incentive compensation based on the financial performance of the investments and 20% based on individual goals, according to the Retirement and Investment Office’s budget No. 190 for SB 2022.

If the three-year rolling average return of the investments exceeds the benchmark return by 0.5%, 100% of the incentive compensation based on financial performance is available to the employees, the document says.

The maximum incentives as a percentage of regular compensation are as follows:

100% for the chief investment officer and executive director
90% for the deputy chief investment officer
75% for the chief risk officer, senior investment officers and portfolio managers
60% for the chief financial officer
50% for investment officers, risk officers and accounting managers
25% for senior investment accountants and investment accountants

Sen. Jerry Klein, R-Fessenden, said RIO would need to earn $132 million above the benchmark to gain the maximum amount for the incentive compensation program.

“If we get there, more power to North Dakota investors that this is really doing its job,” he said.

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