Sustainable and democratic pension governance in the EU

How can pensions become sustainable? The growing trend around the world is to ensure that people who manage money are accountable through the vote. In the EU, like the US, Commonwealth, or the rest of the world, the quality of democracy in capital is not yet adequate. This paper gives examples of options for reform worldwide.

Public Pension Governance and Opportunistic Accounting Choice: A Politico-Economic Approach

The selection of actuarial assumptions used to value state and local government pension liabilities is an important culprit of the looming state and local pension crisis in the U.S. Due to the impact these selection choices have on the value of pension liabilities and annual required contributions (ARC), pension plans are often said to make these choices opportunistically for purposes of freeing up budget resources and making pension funding look better. Using empirical data on 114 state-administered pension plans, this research shows that the likelihood of such opportunistic pension accounting choices (OPAC) increases when the plan is underfunded, organized as a cost-sharing plan, governed by a politically embedded fiduciary body, and when the sponsoring government is surrounded by a high degree of unionization, and is divided in terms of partisan control. The results also show that the likelihood of OPAC decreases when a pension plan is subjected to an audit by a Certified Public Accountant (CPA), suggesting that professional gatekeepers can play an important role in limiting the adverse effects of OPAC behavior, including insufficient ARC payments and reduced transparency of governmental financial reports.

The impact of pension governance practices on the public defined benefit pension performance

Purpose The purpose of this paper is to investigate the impact of the public pension governance practices on the public defined benefit pension (DBP) fund performance. Design/methodology/approach To provide a holistic evaluation of public DBP performance, this study first employs the Data Envelopment Analysis (DEA) approach to construct a relative performance measure that simultaneously takes into account the association between investment inputs and performance outputs across DBPs in our sample. A DEA regression model is then constructed to empirically examine the impact of pension governance on public DBP performance. Findings Using 1,544 hand-collected observations in the USA from 2002 to 2013, the findings show that the public DBP plans with a small board, appointed board trustees, and a separate investment council exhibit better performance. Practical implications The effectiveness of pension governance has increasingly drawn public attention, as it affects the performance of the public DBP plans that especially matter to public employees. The empirical findings of this research offer insights into recent calls to reexamine public DBP management practices and to carry out related public pension fund policy reforms. Originality/value The examination of public DBP governance practices in this study enriches the governance literature, particularly research on public pension funds, by using public sector data. Second, by applying the DEA method to evaluate the relative performance of public DBP funds, this study obtains a more comprehensive analysis of the public pension governance.

Board on the job: public-pension governance in the United States (US) states

Although elected officials have the final say over pensions, boards of trustees also influence plan governance. Not a great deal is known about boards or how they shape policies. Boards are composed of politically and nonpolitically appointed members, as well as active and retired employees. Plan active-employee size turns out to be the best predictor of membership, suggesting that employee voice expands as plans cover more workers. Using both fixed effects and instrumental variables approaches, I show how boards shape plans’ policies and funded levels. Active and retired members shape discount rates, whereas active membership is positively associated with funded ratios. Interestingly, gridlock is also associated with higher discount rates. However, I find that plans’ actual investment returns are poor predictors of expected returns, irrespective of board composition. Although boards offer a venue through which states can manage funds, they are not suited to solving pensions’ governance challenges alone.

Ebbinghaus Bernhard (ed.), The Varieties of Pension Governance, Oxford, Oxford University Press, 2011

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The Governance of Public Pensions: An Institutional Framework

Prior studies of public pensions emphasize the effect of the political economy on the performance of pension systems. We argue that this approach overlooks important institutional features of pension governance and fails to account for endogenous, indirect, and lagged effects. In this article, we describe those limitations and develop an institutional framework to explain the complexity of public pension governance. We identify and discuss critical environmental conditions, formal institutions, and the causal pathways between institutions and pension performance. We also use a case study of the Florida Retirement System to illustrate the explanatory power of the institutional framework.

The Drivers of Public Sector Pension Reform Across the U.S. States

This study analyzes the diffusion of public sector pension reforms across the American states between 1999 and 2012, a policy area notable for its fiscal implications as much as its recent political polarization. Previous enactment in other, non-contiguous states was the largest and most consistent driver of reform. Otherwise, empirical findings suggest that reform antecedents varied by reform type. Existing funding levels reduced the likelihood that states would cut benefits, change pension governance, or reduce cost of living allowances, but had no effect otherwise. Evidence for partisan legislative influence is weak, although Republican control had partial, positive effects on the enactment of pension governance reforms and increases to the retirement age. Across the board, other relevant factors such as constitutional pension protections, collective bargaining rights, and union membership density had no effect. That external contagion pressures have a more robust influence than endogenous conditions raises questions about the future efficacy of pension reform.

Trustees and pension schemes in Ireland

Purpose – This article aims to highlight the gap between the legal responsibilities and the practice of pension fund trustees in Ireland. Design/methodology/approach – The paper relies on primary and secondary data analysis of trustee practice and enforcement cases to highlight the gap between law and practice. Findings – The article finds that there is an inconsistency between legal requirement and practice in the calibre of trustee and trustee training across Irish occupational pension schemes. This has adverse consequences for pension governance and performance. Practical implications – The findings raise the question as to whether there should be mandatory qualifications for trustees or mandatory standardised trustee training in a prescribed format, with which trustees should comply. It also questions whether there should be a governance code for trustees to ensure a minimum standard or target level of competence and good governance on the part of pension scheme trustees. Originality/value – There is a distinct lack of emphasis in the literature and in practice on the inconsistency between the extent of the responsibilities which trustees ultimately carry, and the legal exposure this potentially creates for trustees who unduly rely on other trustees or third parties in the trustee decision making process.