If pension boards are fiduciaries, then the buck stops with them
February 6th, 2013 at 11:36 am by Ted Nesi under Nesi's Notes, On the Main Site
One of the big questions that Tim White and I had while reporting out our Scituate pension investigation was who exactly has fiduciary responsibility for the police pension plan there. The answer, as we suspected, was the Scituate Police Pension Board, which met only once from mid-1999 to mid-2011.
Why does that matter? Because, legally, the pension buck stops with the entity that has fiduciary responsibility for the plan. Credit Treasurer Raimondo with driving this point home in recent years: pension boards, whether at the state or local level, are obligated to make prudent decisions based solely on the best interests of the pension system’s members, even if doing so causes larger budget challenges.
The former chairman of Scituate’s pension board, Ted Pryzbyla, tried to deflect the question of whether the board should have been meeting regularly by saying the town council was in charge of the pension plan. But while the council undoubtedly bears significant responsibility for the situation in Scituate, it’s the pension board that had responsibility to look out for the plan’s financial health no matter the consequences.
The Financial Times’ John Kay, writing about the banking sector, made this point a few days ago:
Fiduciary standards describe how people should behave when they manage the affairs of others. The key elements of the concept are loyalty – put your responsibilities to others ahead of your own interests – and prudence – discharge your responsibilities with care and skill.
Statutes define the fiduciary duties of company directors. The common law imposes demanding fiduciary obligations on other agents, such as the trustees of pension funds. In 1984, a landmark legal ruling on this matter was made in the UK. A case had been brought by Arthur Scargill, the leader of Britain’s main mining union. He sought the end of coal board investments in overseas businesses. The judge rejected Mr Scargill’s claim, on the basis that it is the duty of trustees to increase the fund’s value for its beneficiaries, regardless of their moral or political views.
If you live in one of the 24 cities and towns with a locally run pension plan, it’s worth asking who has fiduciary responsibility for your local pensions and checking whether that entity is carrying out its duties properly.
• Related: Pension board met once in 12 years as shortfall soared by $8M (Feb. 4)
Tags: fiduciary responsibility, gina raimondo, non-MERS, pensions, raimondo-chafee, scituate, ted przybyla
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
My friends in Narragansett tell me there is a Pension Board which meet regularly, but the Town’s finance directors have never been forthcoming about the Town’s funding of the plans until recently when it has become all the employees fault and the plans are too generous. They seem to forget that employees gave up several pay raises to offset the actuarial costs for the benefits. Where’s the accountability.
My question is what legal recourse do the taxpayers have against the Pension Board members who deliberately neglected their fiduciary obligations?
“If pension boards are fiduciaries, then the buck stops with them”
Excellent point, Ted. It sure does.
A legitimate question for the financial auditors is, “Should their audit include a review of the governance of the pension plans to include a review of any pension/investment review board ordinances, review of minutes, and if no meetings were held, disclosure in the audit report (or at least as an audit finding).
Ted,
You are correct except for a loophole in the statutes.
Volunteer fiduciaries are indemnified under state law unless it can be proven they were knowingly and willfully negligent.
It appears that former chairman of Scituate’s pension board, Ted Pryzbyla, has an “ooopps” get out of jail free card with his claim that the town council was in charge of the pension plan (aligned with the “this is RI” escape clause).
What else can I say, this is RI.
The pension problem and all the state’s othe financial prolems will be solved when the state goes bankrupt. With the constant exodus of middle class taxpayers and and business, this will happen soon
The “prolem” with that, genius, is that states can’t declare bankruptcy…
most volunteer members of local govt are local lawyers, insurance agents, etc trying to make a name and build their practice. Very rarely will a private sector employee who is involved in an international business have the time to meet at 7 PM many times on subjects that dont directly concern them. The local lawyers, insurance/real estate guys/gals need to keep the largest potential client base happy which is #1 teachers and #2 public safety. The rest of the workers are too fragmented and busy to pay attention. The lawyers and financial types know any problems will occur after they are gone but they will get a stream of closings, DUI, divroce, etc.
may i add that a surprising number of pension board types are people receiveing pensions.
Really Art? What’s the number? And the “type”?
Time to start a RICO Conspiracy Fraud Charge against the Unions and the Democrats!
every one on the pension board in mid 2000′s including the dominant members the Unions were aware the town was not funding the pension plan. I was on the board in 2008 and pointed out it wasn’t being funded and no one would address it ..I resigned upon finding this out and publicly declared the problem at Town Meetings. Nothing was done. to this day Narragansett has not put a single penny into the pension plan since the early 2000′s.Shameful. After several town managers and finance directors. We have a really good finance director Don Goodrich. Now that the town of Narragansett has been placed on “critical status” people and councilmen are waking up. The newly appointed finance committee of leading citizens is addressing the Funding Improvement Plan proposals with the help of Mr Goodrich. In this towns case the problem started with elected officials in the late 1990′s. Since then all parties share responsibility including the voters and apathetic non-voting citizens who ignored the problem and /or hoped it would go away. There is no pleasant solution. I believe everyone should pay for past debts including OPEB and we should end defined benefit programs altogether in the public sector or move into hybrid systems like the well thought out state system that exists today.
my comments above refer to narragansett only and i am investigating scituate as well as coventry and west warwick