A court ruling in California has public pension fund trustees in that state and across the country walking out of board votes rather than risk being charged with conflicts of interest.
A state appeals court ruling created the confusion. That ruling by the California Court of Appeal, Fourth District, San Diego, in Lexin vs. Superior Court found that trustees, who often are participants in the retirement systems on whose boards they serve, can be criminally liable if they approve a contract that tangentially provides them a personal benefit.
Some observers are concerned the ruling could affect a board of trustees ability to adopt rates of return and other assumptions underlying plans actuarial valuations.
The appellate ruling let stand criminal indictments of former board members of the $4.8 billion San Diego City Employees Retirement System on charges that they reaped personal gain by allowing the city to underpay its contributions to the pension fund, resulting in a massive deficit. But the opinion also eliminated a safe harbor that exempted public board members in California from most conflict-of-interest situations, in effect extending the criminal liability to less extreme circumstances than occurred in San Diego, according to lawyers and public pension system officials.
The case now is awaiting review by the California Supreme Court.
In the meantime, nervous board members are declining to participate on some votes and walking out of meetings while the votes are being cast.
People have been recusing themselves and they have a heightened sense of disclosure. Ive seen half of the board members have to leave a meeting, Harvey Leiderman, San Francisco-based partner for law firm Reed Smith LLP.