President Abraham Lincoln was known for his honestly and integrity, but today, Illinois, the Land of Lincoln, is suffering from a spate of pension scandals that has its leaders calling for reform. The Governor of Illinois has proposed a host of reforms for his state’s embattled pension systems after the indictment of a former pension board member and as a grand jury continues to look into large payments made to a placement agent doing business with that same state pension. Governor Rod Blagojevich announced reforms that would eliminate contingency fees paid to placement agents and require board of trustee members to disclose more financial information.
The proposal, which already has the backing of some key state legislators and the support of the Illinois AFL-CIO, would make Illinois the first state to enact several of these initiatives, according to the governor’s office.
*Prohibit any contingency fees paid by money managers to placement agents for working with state pension investment boards, a first for state pension systems, according to the announcement. It would also require any such placement agents to register as investment advisors subject to SEC oversight.
* Bar its pension systems from hiring advisors that receive revenue other than consulting fees or does business with firms that manage state pension funds, which would be a first for any state again. State investment boards would be prohibited from using money managers that have had their professional licenses revoked or violated ethical standards.
*Increases fines and prison terms for ethics violations and fraud. The new rules would increase fines from $1,000 to $25,000 and raise penal sentences from six months probation to two to five years in prison.
*Require all public pension boards to use competitive solicitation processes and expand existing disclosure requirements for trustees, boards, advisors and managers.
*Force public pension systems to adhere to the same 2003 state ethics laws as their governmental counterparts.
The governor’s announcement directly mentioned indictments against former trustee Stuart Levine and two attorneys. The three are accused of soliciting kickbacks totaling hundreds of thousands of dollars from private equity firms seeking investment from the $34 billion pension system. Levine was appointed to the Illinois TRS board in 1996 and resigned last year.
The same announcement also referenced the Carlyle Group’s payment of $4.5 million to Robert Kjellander, a lobbyist who helped Carlyle receive a $500 million investment from TRS.
Illinois Teachers’ Retirement System (TRS) announced last month that it had made several changes to its investment policy. The retirement system’s board of trustees approved a new policy banning certain third-party payments and mandating that all partnership documents receive legal approval before submission to the board.