Got Pension Governance?
Advertising executives in moo moo land must be deliriously happy. Who would have thought that Hollywood stars donning a calcium mustache would get such good press? Maybe it's time to recruit them to this side of the fence. With headlines dominated by stories about pension malaise, couldn't an ad campaign help to allay any fears about a possible funding meltdown and make pension governance seem cool, hip and happening?
Growing interest in knowing what works best for defined benefit and contribution plans alike is terrific news indeed but there's more work ahead.
How should good behavior be monetized? We know how to calculate damages associated with alleged misdeeds that get adjudicated in court or via liability insurance claims. Why then is it so hard to quantify adherence to high standards?
What motivates some organizations to stop at minimum compliance versus others who go the extra mile? Is it because we're accustomed to measuring explicit costs instead of foregone opportunities? Is it because knowing who owns the retirement issue is anyone's guess? (As I wrote in "Searching for Hidden Treasure", identifying names of pension fiduciaries is often a Herculean task.)
Is pension governance seen as nerdy, unimportant or too hard to understand? Do pension decision-makers feel that time and money spent on best practices is unappreciated and therefore not worthwhile? Do they feel protected by anonymity and/or fiduciary insurance policies with a hefty face value? Are they overwhelmed with their full-time jobs and not able to focus on the "extra" pension work? (This applies to the large number of individuals for whom playing the role of pension fiduciary is a job duty add-on.)
At the very least, transparency is a step in the right direction towards good pension governance, yet something that eludes many of those not directly involved with a particular plan.
Anecdotally, when I was writing Risk Management for Pensions, Endowments and Foundations, getting information about institutional investors was often like pulling teeth. Three years of research later, I was still hard pressed to get more than a few people to go on record about their policies and procedures.
One of several exceptions was Mr. Gary Findlay, now Executive Director of the Missouri State Employees' Retirement System. He freely shared information about governance, organizational structure and investment policy. The website is worth a visit for what appears to be a bounty of information. As Findlay offers, once a legal framework exists, "well developed governance policies that establish objectives, identify roles and responsibilities, and align interests are critical to the pursuit of excellence."
Shouldn't good policies be boldly announced to the public as a badge of honor? What is there to hide? At the very least, publicizing a fund's best practices could go a long way to demonstrating procedural prudence. Additionally, it could possibly minimize the chances of unhappy parties seeking redress later on, rather than allowing for the benefit of doubt.
So the question remains.
Got pension governance?
If not, why not?
Editor's Note: A few references to disclosure articles are provided below.
1. "Form 5500 Revisions" (explanation of what still remains unknown)
2. "Pension Risk: What We Don't Know Can Hurt" (first published in Mann on the Street, 2006)
3. "Deciphering Risk Management Disclosures" (first published in AFP Exchange, March/April 2004)
