The court Friday granted the Retirement System Investment Commission’s request to take its case against the first-term Republican treasurer. A hearing is set for 8:30 a.m. Tuesday.
The commission that oversees the pension portfolio argues Loftis is attempting an illegal power grab by refusing to fund an investment he and his fellow board members approved last November. It is asking the high court to act quickly, saying the state will default if $11.7 million isn’t paid Tuesday.
Loftis, the board’s only elected member, notes that state law makes him the official custodian of the money. But the commission contends that’s an administrative task — that he has no special authority over an investment after it’s properly approved. The lawsuit filed Thursday cites a November 2011 opinion from the South Carolina attorney general’s office, and similar cases in other states, to back up the commission’s argument.
The court has directed Loftis to file a response by Monday morning.
Loftis has said he won’t sign off until he gets more assurances the state won’t overpay on fees. He argues the current paper trail — which includes copies of emails — isn’t sufficient, so he created a document he wants the commission’s attorneys to sign.
“My requests to the investment commission have been straightforward and simple,” he said Friday. “These games are not productive especially when the funds of working people are at stake.”
But while the case involves a spat over a particular investment, the commission hopes the state’s high court settles once and for all questions about Loftis’ role and responsibilities with the fund, which provides the pensions of South Carolina’s public workers.
“This is not about a document. This is not about fees, and this is not about custodians,” the commission’s chief operating officer Darry Oliver said Friday. “This is about the law and the statutes and the very essence of why this commission was created.”
Before the Legislature created the commission in 2005, investments were managed by the treasurer and the Budget and Control Board. That five-member financial oversight board, which includes Loftis, attempted to resolve the dispute last summer by hiring an attorney to interpret the law. That opinion was given behind closed doors.
In its order Friday, the court gave the State Retirees Association permission to file a brief supporting the commission’s arguments, as it requested. Association president Wayne Bell said his group has worked over the last decade to remove politics from investment decisions and ensure the commission has what it needs to invest public employees’ money wisely.
“You do not want it invested based on political ideology,” Bell said. “The trust fund is too important to leave to any one person or political vulnerability.”
On Friday morning, Loftis cited the case in a fundraising plea to supporters. Loftis has $16,200 in cash available toward his run for a second term in 2014, according to campaign documents filed Wednesday with the state Ethics Commission. Over the last quarter, he raised just $3,435 and spent $4,013.
“Five unelected bureaucrats should NOT have total control of $27 BILLION of your tax dollars,” the email read. “You, as a taxpayer, deserve better. And I refuse to back down. Will you stand with me?”
Regardless of the case’s outcome, losers will include taxpayers and retirees.
Since April 1, additional interest of $1,600 a day has accrued on the commitment to private equity fund Warburg Pincus. That daily fee increases after Tuesday.
Both sides have received permission from the attorney general’s office to hire outside attorneys at a rate of $175 an hour. The commission’s attorneys will be paid from the fund. Taxpayers will foot the treasurer’s bill.
Oliver said the larger cost is the state’s reputation in the investment world.
“It’s impossible to calculate right now the irreparable damage the commission and trust would experience by being a defaulting limited partner,” he said. “The extent of that damage is just going to have to be determined depending on what happens.”
Loftis repeated his stance that he’s trying to protect the fund from paying too much in management fees.
“I am responsible for the safekeeping of all state funds,” he said. “The commission refuses to give me written assurance that fees will not change and that is not enough protection for your retirement funds.”