Pension fund trustees and executive leaders juggle numerous priorities — from high-level investment strategy to administrative hurdles associated with providing retirement benefits for members. Occasionally, however, despite best efforts, the unexpected happens, resulting in the need for an internal investigation or to respond to an investigative inquiry from a regulatory or other governmental bodies.
Investigations can be prompted by trustees, executive leaders or government regulators. Often, these investigations stem from concerns that are not unique to pension funds, such as claims of sexual harassment, employment discrimination or compliance risks. For example, in 2018, Oklahoma Attorney General Mike Hunter confirmed an investigation into claims of embezzlement at the $3 billion Oklahoma Police Pension and Retirement System, Oklahoma City. (The pension fund chief was later terminated and entered into a settlement with state prosecutors.)
Other inquiries, however, are more unique to the pension fund environment. For example, beneficiaries could launch a challenge to investment decisions. Today, we are seeing an increased focus on ESG concerns, ranging from divestment in coal or other fossil fuels to investments in countries with poor human rights records.
Other investigations can stem from the relationship between the fund and its investment advisers, as more and more funds are being challenged on the nature of relationships with private equity funds. For example, in 2021, the U.S. Department of Justice launched an investigation into the $9.5 billion District of Columbia Retirement Board. Media coverage indicated that the subpoenas issued sought "documentation of a variety of financial transactions, including, specifically, records of payments to investment managers and investment consultants."
Such concerns regarding the relationship between funds and advisers are not new. Nearly 20 years ago, significant attention was focused on the $11.5 billion Chicago Public School Teachers' Pension & Retirement Fund and reporting indicates that the fund is still engaged in a forensic audit. Finally, for public pension funds, unique concerns can arise related to contours of state law, freedom of information compliance or criminal wrongdoing.