Pension plan trustees, whether for corporate or public plans, need adequate resources to fulfill their responsibilities as fiduciaries for both the beneficiaries and sponsors. Those resources should include an appropriate internal budget to finance, among other things, consulting expertise.
In New Jersey, to take a controversy in the news of late, the state denied trustees of its biggest public plan financing to hire an independent actuary to evaluate actuarial assumptions the state uses to determine funding status and its level of contributions.
Across the country many states, municipalities and other public authorities have long manipulated their employee pension plans. Although state officials in New Jersey might have not behaved in this fashion, officials in other states have. Often legislators and governors have sought to finance budgetary deficits by cutting back on pension contributions; that's one reason for the underfunded status at many public funds. Elected officials, also, have used pension plans as a means of paying off political favors, such as by increasing benefits without providing adequate funding to finance them.
In Illinois, for example, a recent legislative measure would allow police officers on leave from their force while serving in the General Assembly as either senators or representatives to continue to build credits in their police pension plans. At the same time, they would build credits in the legislative pension plans. So they would receive a double dip of pensions, without contributing or doing any work for their police pension credits. Illinois residents may ask why police officers should receive two pensions, while working only one job for taxpayers.
The Chicago police pension board plans to write the governor to ask him to veto the measure, according to an aide to the Chicago city treasurer, who is one of the trustees and reported the move. The board worries, with good justification, the move will increase unfunded pension liabilities and harm the fund and the other beneficiaries of the plan it oversees.
In New Jersey, the trustees of the $16 billion Teachers' Pension and Annuity Fund have sought to independently analyze and doublecheck actuarial assumptions. Assumptions made by an actuary trustees cannot hire or fire will allow the state to cut pension contributions by $5 billion over five years.
A separate selection committee picks the plan's actuarial firm, which projects a multibillion-dollar surplus in the plan. The trustees for the teachers fund, worried about the loss of contributions and the amount of the surplus, have sought professional consulting assistance to review the plan. Yet, state officials have denied the trustees financing for a consultant. Even though the state hopes to reap billions of dollars through reductions in pension contributions, state officials contend the state cannot afford to pay a consulting actuary the trustees would hire.
Trustees, whether in New Jersey, or Chicago, or anywhere, have to have adequate budgets to finance appropriate professional services, such as actuarial consulting.
The trustees, after all, bear fiduciary liability for the plan. Trustees can be overly conservative in their own assumptions. But any public authority needs a mechanism for ironing out differences between concerns of trustees and public officeholders. Too often, trustees, even though they are accountable, lack the authority they should have.