An important area of public pension fund governance that has not received sufficient attention is alignment of governance responsibility with corresponding authority.
In other words: What are the key decisions? Who is responsible for making them? Do they have the necessary authority?
Boards often are handicapped by being given responsibility for achieving certain outcomes but not having the authority needed to do so. As a result, boards often incur greater risk for participants and plan sponsors than they realize, especially in rapidly changing environments.
It is critical for pension systems to examine their governance alignment to ensure the fiduciary board has authority to consistently fulfill its duties without structural impediments.
Lack of a standard governance model among public pension funds complicates the ability to make comparisons between funds and requires a custom analysis for each governance model.
In the U.S. alone, there are at least four governance models in use among the major state and municipal pension funds: