At a time of corporate and governmental slimming, perhaps it was inevitable pension departments would feel the pinch. Inevitable, perhaps, but not necessarily healthy. No reputable doctor would advise a malnourished patient to go on a diet, and yet, that appears to be happening at some corporate and governmental pension funds.
The possible damage from such slimming activities affects not only those corporate and government funds that are placed under the knife, but also others who see the cutbacks and begin to anticipate they might be the next victims.
Indeed, consultants and others in constant contact with pension executives report morale is low at many funds, even those that so far have remained untouched by cutbacks. Pension executives often are reluctant to leave their offices to attend conferences, or even to visit the offices of prospective money managers, because an empty office might make them seem expendable. Some are declining to take well-earned vacations for the same reason.
The danger of this low morale is that some pension executives might be spurred into making unnecessary changes in their funds just to make themselves seem indispensable. And this might not even be a conscious decision.
But conscious or not, it can inflict unnecessary cost on the funds and reduce investment return.
Few corporate or public employee pension funds have been overstaffed in the past. Indeed, most experts who deal with funds on a regular basis have been struck by how thinly staffed most funds have been.
It has long been a topic of comment in the pension industry that corporate pension staffs oversee more assets than most corporate operating divisions, and can have an impact on the bottom line as large, or even larger, over time than most divisions, and yet generally have the smallest staffs.
This is because pension funds generally are seen as cost centers rather than profit centers. Financial Accounting Standards Board accounting rules should have done much to overcome this view, because companies with overfunded pension plans can recognize pension income, but the cost-center perception dies hard.
In addition pension funds, if effectively and efficiently managed, can save their sponsors hundreds of millions of dollars in the form of contributions not made.
Contributions not made can be retained in the company for capital investment, or paid out to shareholders in dividends, or in the case of public employee funds, left in the hands of the taxpayers.
On the other hand, a mistake by an overworked pension staff could cost a pension sponsor hundreds of millions of dollars. Slimming of the pension staff might, in the long run, be a false economy.
Reducing the pension staff might not even be cost efficient in the long run. An understaffed pension fund might have to spend more on outside help to carry out its fiduciary responsibilities by hiring consultants - often at a cost greater than maintaining an additional staff person.
The stability and efficiency of pension fund investment must not be risked by ill-advised reductions in pension staffs.
The pension fund investment staff should not be immune from scrutiny at a time of fiscal stringency. But the pension fund should have all of the staff it needs, and not one person less.