School Board hotly debates trust fund issue

Talk about it

Cloquet School Board members were sharply divided over how to invest funds from the district’s Other Post-Employment Benefits (OPEB) trust at their meeting on Monday night.

The issue of how to re-invest over $6 million of trust money – whether to re-invest it with a different company, or whether to move the money at all – has been a subject of contention for much of the summer.

In July, the board heard proposals from five different companies which expressed interest in managing the trust. On Monday night, the board discussed their options.

Board member Sandy Crowley began the discussion by advocating that the money be invested with Ameriprise Financial, which has an office in Cloquet.

“We need to keep the trust money local,” she said. “We took this money from taxpayers, about six million dollars of it. We didn’t ask them for it. We owe it to them to keep the money local.”

Board member Jim Crowley agreed, saying that the trust placed in local representatives counted for much.

“Wells Fargo came in intimating that they would have a local presence but all their trust people are in Minneapolis,” he said. “The money should stay local. I know the people at Ameriprise and their integrity. Trust is very important.”

Crowley’s proposal drew criticism from board member Dan Danielson, who noted that – while a highly reputable company – Ameriprise does not have an OPEB client in Minnesota.

“Keeping the money local is a good concept but we need a manager who has experience in OPEB trusts,” he said.

Danielson and board member Duane Buytaert also noted that they felt the board’s process of appointing a subcommittee to deal with the issue had been circumvented.

“I don’t want to air dirty laundry here, but we did have a subcommittee,” Danielson said. “Someone then decided to ask for the proposals to be heard by the full board. So there’s really no reason to go back to [the subcommittee].”

“The subcommittee was supposed to make a recommendation,” Buytaert said.

Subcommittee members were Danielson, Sandy Crowley and Dave Battaglia.

Battaglia noted that district Business Manager Kim Josephson had made a recommendation to the board favoring either current manager PMA Financial Network, PFM Financial Management or Wells Fargo due to their experience with OPEB trusts.

“We have our business manager sitting over there who knows more about school finance than any of us, and what we’re telling him is that ‘we’re going to ignore your recommendation,’” Battaglia said.

Josephson said he made his recommendation based on the trust experience issue. He noted that both Ameriprise and Split Rock Private Trading, which also presented to the board in July, have not worked with OPEB trusts. Financial companies, as a matter of course, often do trust work as part of their regular business.

While casting no aspersions on those two companies, Josephson said he would prefer to work with a company experienced in that particular type of trust.

“We need to make sure that the trust documents and all the investments are done according to the statute and state law,” Josephson said.

OPEB trust money may not be invested in certain types of riskier investments, but state statute allows such money to be used in investments available to public pension plans. This gives OPEB trusts more investment options than are available to counties and other public entities under current law and makes them attractive to public entities with retiree health care obligations.

Sandy Crowley’s motion to transfer the funds to Ameriprise then received a vote, failing on a 3-3 tie. Board Chair Gary Huard joined the Crowleys in support while Buytaert, Danielson and Battaglia voted in opposition.

Jim Crowley then moved the discussion to the issue of fees charged by the various companies and which company might provide the best deal for the district.

Discussion centered around management fees and “loads,” which are fees charged either upon entry into a certain type of investment (known as a “front-end load”) or charged annually for asset management (known as a “back-end load”).

Josephson was directed by the board to ask each company for a direct fee comparison for fixed and variable assets so that a direct comparison between the companies could be made. Josephson also said that very few districts invest trust funds in variable assets such as mutual funds due to the possibility of loss of principal.

The board may revisit the issue at its next meeting Aug. 27, but Josephson noted that the board could take as long as it wishes to make a decision or even make no decision at all if it wishes to keep PMA as the district’s trust administrator.

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