Saturday, September 30, 2006


Pension Fiduciaries and Conflicts of Interest




In a September 26, 2006 press release from the Pennsylvania Department of the Auditor General, results of several special performance assessments are telling. State Auditor Jack Wagner encourages reforms, some of which are shown below:

1. Improve "how individual board members monitor and report conflicts of interest to improve transparency in governance"

2. Formalize "professional training for board members"

3. Make better the "structure of internal audit operations to improve independence"

4. Change "state law and fund policies to ensure that all board members are subject to a modern legal standard for judging their investment decisions."

Asking investment advisors to disclose campaign contributions whenever they present to the board is another suggestion. This is important since political appointees sit on the boards of the Public School Employees' Retirement System and the State Employees' Retirement System, respectively. Together, these two funds account for nearly $87 billion and 600,000 employees and retirees.

Given a reported funding gap in the neighborhood of $11 billion, a focus on conflicts of interest is noteworthy. The last thing any plan participant wants is an investment problem, whether it be an outright loss, sub-par performance, lack of suitability, excess fees or something else. Unfortunately, the absence of an independent review process leaves everyone guessing. (This applies to any fund.)

Was the right decision made for the right reason?

As a general rule, why aren't boards more independent in the first place? Is it really rocket science to recognize the importance of making decisions on the basis of solid investment analysis and not because money talks?

Editor's Note:
Other audits were performed by Independent Fiduciary Services, Inc. and looked at areas such as due diligence procedures, investment performance reporting, fiduciary liability insurance and costs and fees. For a copy of the two detailed reports, visit
http://www.independentfiduciary.com/resources.
posted by Susan Mangiero at 9/30/2006 12:30:00 AM