The Senate’s 2025-27 biennial budget proposal and House Bill 506 recommend creating the North Carolina Investment Authority (Investment Authority) to replace the State Treasurer as the financial manager of the state retirement systems’ assets. Interestingly, the newly elected Treasurer, Brad Briner, proposed this move during his 2024 campaign. Moreover, the Office of the State Treasurer drafted the fiduciary model proposed in the Senate’s Budget and House Bill 506 upon Briner stepping into office.

Current model

Currently in North Carolina, the Treasurer is the sole fiduciary of the retirement system, making it one of only three states that utilize this model. The two other states with a sole fiduciary model are New York and Connecticut, both of which have former officials who served jail time for corruption related to their fiduciary role.

In the existing model, the State Treasurer has the sole authority to make investment decisions for the state retirement system’s pension fund valued at $127 billion. Although the Treasurer appoints an Investment Advisory Committee, this delegation lacks the authority to make investment decisions.

It is worth noting that in 2014, the North Carolina Investment Fiduciary Governance Commission was established to assess the governance structure of the state retirement system. The bipartisan commission recommended switching from a sole trustee to a board of trustees model; however, the State Treasurer at the time, Janet Cowell, showed little interest in relinquishing authority.

It is extremely rare for elected officials to advocate for changes that would diminish their power.

Proposed model

The proposed Investment Authority mimics the fiduciary model that State Treasurer Briner repeatedly touted on his campaign trail. While it might not be unusual for politicians to recommend structural changes to government, it is extremely rare for elected officials to advocate for changes that would diminish their power.

In the proposed model, the Investment Authority would replace the State Treasurer as the financial manager of the state retirement system. The Investment Authority would be governed by a Board of Directors consisting of five voting members:

  • The State Treasurer would serve as the Board Chair.
  • The State Treasurer would appoint one member.
  • The Governor would appoint one member.
  • The President Pro Tempore of the Senate would appoint one member.
  • The Speaker of the House would appoint one member.

The four appointees would require confirmation from the General Assembly. Terms would be six years, with a two-term limit that resets after a one-year hiatus from the Board. Moreover, the appointees would be selected in a staggered manner to ensure continuity and the preservation of institutional knowledge.

The Investment Authority would be obligated to submit monthly reports outlining asset allocations and returns on investment; this would increase reporting frequency compared to the current quarterly reports required by the State Treasurer.

The Investment Authority would be required to convene at least once every quarter. A quorum would consist of at least three Board members, and in the event of a tie, the Treasurer would serve as the deciding vote.

Expected effects

Transitioning the state retirement system from a sole fiduciary model to a Board of Directors is likely to have the following effects:

Broadened expertise: Increasing the number of financial specialists involved would diversify the knowledge base used in decision-making. Also, investment decisions should be more balanced relative to a sole trustee because the five-member Board would foster debate that reduces the likelihood of an over- or under-aggressive investment strategy.

Enhanced governance: The Board would introduce collective oversight, minimizing the risk of errors or misjudgment. Moreover, due to the Board’s staggered terms, institutional knowledge would be more easily retained and passed on.

Reduced risk of corruption: Thanks to shared power and process transparency, the five-member Board would make corruption more difficult than a sole fiduciary model, which centralizes authority and increases susceptibility to unethical practices.

Diminished accountability: While the Board of Directors model offers several advantages, one potential drawback is the diffusion of responsibility that comes with group decision-making. In this structure, Board members may shift blame for poor investment outcomes onto one another, making it more difficult to hold any single person accountable. Additionally, because most Board members are appointed rather than elected, they may not be directly responsible to the public.

Closing thoughts

The creation of the Investment Authority would represent a substantial shift in the governance of the state retirement system, aligning it more closely with best practices used throughout the country. By transitioning from a sole fiduciary to a board-led model, we should expect improved oversight, reduced risk of corruption, and increased expertise.

Notably, it is extremely rare for politicians, like Treasurer Briner, to campaign for reforms that dilute their authority, emphasizing the importance of this opportunity. The proposed model reflects a forward-looking approach to managing public funds that should strengthen the long-term stability of the state retirement system.