If pension boards are fiduciaries, then the buck stops with themFebruary 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)