To date, little attention has been paid to the role that pension boards have played in managing—and, in some cases, mismanaging—the retirement systems of states and their localities. Large pension plans are among the investors most actively focused on corporate-governance matters relating to the publicly traded companies in which they invest; but the governance structures of public pension funds typically lack many features that such funds champion for private companies.
- State and municipal employees’ public pension funds have obligations that total, in the aggregate, almost 130 percent of state and local governments’ annual budgets: on average, the assets available to meet these obligations fall well short of the amount necessary—by some $1 trillion, even under such plans’ own overly rosy growth assumptions.
- Public pension boards lack adequate fiduciary duties: state and municipal funds are not subject to federal fiduciary duties that apply to private pension plans and are instead subject to a hodgepodge of typically more lenient state-law requirements.
- Public pension boards lack diversity and financial expertise: among 87 boards studied by the National Association of State Retirement Administrators, 73 percent of all board members are plan beneficiaries or elected officials; a study by the National Education Association of 89 major public-education pension plans found that only 24 required at least one citizen financial expert on the board of trustees.