Lawmakers to review pension agency’s plan to reimbuse board members’ legal expenses

NM pension board sets aside $1.5M for legal costs

SANTA FE, N.M. — New Mexico’s pension program for educators plans to set aside $1.5 million to pay for legal expenses of board members who are facing lawsuits and a pending federal investigation over failed investments.

However, the Educational Retirement Board’s reimbursement proposal is coming under scrutiny by a legislative committee, which plans to review it at a hearing Friday. The $1.5 million will come out of pension funds.

The Legislative Finance Committee also is looking at other state investment agencies’ policies for indemnifying appointed members from legal claims brought against them.

The committee wants to “see whether or not these policies are going beyond what we would consider to be acceptable legally,” said Rep. Luciano “Lucky” Varela, a Santa Fe Democrat and the panel’s chairman.

Four current and former educational pension board members have been sued, either in whistleblower lawsuits brought on behalf of the state by a former pension fund investment officer, or in class-action lawsuits by educators and retirees alleging that the pension fund was hurt by bad investments.

The lawsuits allege “pay-to-play” political considerations in Gov. Bill Richardson’s administration influenced investment decisions. Administration officials say there’s been no wrongdoing and one of the whistleblower lawsuits has been dismissed by a state district court judge. The governor is not named as a defendant in the lawsuits.

A federal grand jury and the Securities and Exchange Commission are investigating investments by the pension fund and the State Investment Council. The target of the investigation remains unclear, but documents have been subpoenaed about a financial firm that advised the state agencies and has been implicated in a New York state pension fund scandal, and third-party marketing agents involved in securing state business for their clients.

State-paid lawyers are provided for board members and state agency officials who are defendants in lawsuits, but ERB chairman Bruce Malott also has hired a private lawyer to handle matters not covered by his government attorney. Malott’s lawyer told the pension board earlier this year his client had nearly $300,000 in legal expenses so far.

In March, the board approved a policy for paying legal fees of board members. However, no reimbursements have been made so far, according to ERB executive director Jan Goodwin.

The board based its policy on a state law that says members of the board “shall be indemnified from the fund by the state from all claims, demands, suits, actions, damages, judgments, costs, charges and expenses … and against all liability, losses and damages of any nature whatsoever that members shall or may at any time sustain by reason of any decision made in the performance of their duties.”

The board has a pending “budget adjustment request” to take $1.5 million from the pension fund for reimbursing current and former board members for legal services they receive in the current fiscal year. The Richardson administration’s budget agency has approved the request, but the Legislative Finance Committee is holding a hearing on it Friday. The LFC lacks the power to veto the proposal, however, allowing the board to move ahead despite any objections.

The Investment Council has reimbursed its appointed members and agency staff for more than $110,000 in legal expenses related to the federal investigation, including providing documents and other information to investigators, according to Charles Wollmann, a spokesman for the council, which manages state endowment funds valued at about $13 billion.

Members of the pension fund board and Investment Council are not paid a salary but receive a “per diem” expense payment for attending meetings. Wollmann said indemnification for legal costs or damage claims is important if investment agencies want qualified public members to serve.

“Who wants to put their neck on the line for basically per diem,” Wollmann said Tuesday.