Labor & Employment Law

AFSCME Report Recommends Best Practices for Public Pension Plans

By Mike Hall

A new report by AFSCME outlines best practices and makes recommendations on improving the governance of the nation’s public pension plans. AFSCME’s 1.6 million active and retired members participate in more than 150 public pension systems with assets totaling more than $1 trillion. Overall, state and local government pension plans cover 7.5 million retirees.

AFSCME President Gerald McEntee says the public pension plans “are the best and most efficient way to deliver retirement security to public employees.” But he adds that retirement security is

directly tied to the investment performance of public pension systems. Just as AFSCME has been a leader in promoting good corporate governance, our leadership in promoting effective governance of pension plans will ensure that they remain strong.

According to the report, “Enhancing Public Retiree Pension Plan Security: Best Practice Polices for Trustees and Pension Systems,”

in recent years public pension systems have had to cope with additional economic and political challenges that have made the jobs of those who oversee and administer these systems even more difficult.

The report reviews best practice policies and recommends policy language for pension systems to adopt, with a focus on board member responsibilities, education, core competencies and ethical and fiduciary conduct. Recommendations of best practice policies for pension systems include prohibiting insider trading, requiring strict compliance with conflict of interest laws, limiting gifts, disclosing communications with prospective vendors, prohibiting pay-to-play political contributions and restricting the use of placement agent services.

The AFSCME report also proposes banning current and former pension trustees and staff from providing placement agent services at any system where they were previously employed. Such a ban, says McEntee, “would protect the fiduciary integrity of the system.”

When vendors gain access and have inside knowledge because of their placement agent’s relationships within any given pension system, investment decisions are not made on purely fiduciary grounds.

Click here for the full report.

Full post as published by AFL-CIO NOW BLOG on December 21, 2009 (boomark / email).