Public pension plan management is often referred to as pension governance. How states manage – or govern – their pension systems can be complex. In most states, a board of trustees represents different stakeholders in the pension plan manages the system. Such stakeholders typically include teachers, retirees, the legislature, the treasurer’s office, and the governor. Some states also have independent members that represent the financial community or taxpayers, while others have an auditor, comptroller, or other oversight official on the pension board.
Ultimately, the governance structure of pension systems vary a great deal in the number of trustees, the stakeholders they represent, how they are selected, and minimum qualifications. Well-constructed boards should give all stakeholders a voice in decision making for public pension plan management; the exact balance will depend on preferences in a given place.
The most important part of pension governance is adherence to fiduciary responsibility. The pension board holds a fiduciary responsibility for administration of benefits and investment of assets, meaning they are legally and ethically bound to make decisions in the best interest of public workers. Given the complexity of pension board responsibilities, governments should make sure there are appropriate qualification standards for individuals to serve on the board. Retirement systems should also make sure they provide appropriate training for any board members who need it for public pension plan management.
This article is part of Equable’s Pension Basics series. To learn more about how your pension works, check out the other articles in the series:
5. Normal Cost