The National Conference on Public Employee Retirement Systems has stepped into the fray with its own set of fiduciary guidelines to help pension funds maximize on their investments, but not overstep their bounds with overly risky behavior.
NCPERS' Best Governance Practices for Public Retirement Systems includes recommendations on board practices, policies, risk oversight, strategic planning and stakeholder communications.
The organization, which represents more than 550 funds holding almost $3 trillion in assets, says that state and local government pension funds are under intense scrutiny to reign in risk and provide the best benefits to their members, as well as taxpayers and other stakeholders.
“Public pension funds play a leadership in delivering high quality, cost-effective benefits to their members through effective oversight, accountability and transparency,” said Hank Kim, NCPERS executive director and general counsel. “These practices are intended to contribute to these outcomes as the markets and the economy evolve.”
Some of the major practices outlined include the following:
- There is a strong link between best practices and performance. Research has found that effective governance may improve investment returns by up to 1 percent to 2.4 percent, annually.
- In a recent survey, almost 9 in 10 institutions reported that they established a chief risk officer role to centralize accountability for risk management, a core function of governance.
- Beyond investments, initiatives such as fiduciary training and risk assessments drive performance across a fund’s administrative, member service and compliance functions.
- The current focus on fund governance is likely to increase in light of policy debates that are increasingly focused, largely without merit, on public employee benefit levels.