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A New Year for Pension Fund Fiduciaries

As I sit here in my office, contemplating why I decided to go back into the practice of law after 15 years in private industry and the public sector, I couldn’t help but be struck by a New Year’s cartoon in this morning’s paper. An impossibly old man with a long beard looking beaten down and frail is wearing a roman-style toga emblazoned with“2010.”  

He passes something off, perhaps a baton, to a baby in diapers.  The 2011 baby looks optimistic, if a bit uncertain, as it moves forward into the coming year.  This imagery is particularly apropos to the experience of pension fund fiduciaries in 2010.  A year ago, pension funds were coming out of a two year roller coaster for fund returns with the steep and sudden drops far out numbering the slow and steady climbs. Private and public pension funds continue to be faced with daunting deficiencies between assets and liabilities. Add to that the search for scapegoats for the inability of state and local governments to meet their financial obligations, and it is no wonder this year’s version of father time looks so decrepit. For the longest time, trustees of pension funds were appointed or elected and received little training on what it meant to be a fiduciary.  They attended monthly or quarterly meetings and the occasional conference. 

Then they made decisions; decisions about which investment managers to hire or fire, whether a member is entitled to certain benefits under the plan, whether or not to offer a cost of living adjustment or provide other benefit expansions to a class of participants.  Rarely were they compensated for their service, nor are they now.   And, rarely did their decisions get so much media scrutiny and political second guessing.   However, after two recessions in the last 10 years, times are changing for pension trustees and officials.  They are now better qualified and receive better training.  Nevertheless, participants, elected officials and others are looking at what responsibility fiduciaries of retiree, and future retiree, assets have for any real or perceived underperformance of those funds.  In two of the most egregious examples, we saw fund trustees in  San Diego and New York criminally investigated for alleged improprieties. 

In New York, the former State Comptroller pleaded guilty in connection with an illegal “pay-to-play” scheme.  In other states, we are seeing more stories publicized in the media about high salaries and/or bonuses paid to pension fund officials, or fund-established assumed rates of return deemed unreasonably high or asset allocations to investments deemed too risky.  

These are just a few examples of issues pension fund fiduciaries are likely to face in 2011.  As we look forward into the New Year, not only do I see these issues continuing to play out, but I believe that even more questions of trustees, fund administrators and other fund fiduciaries will be raised.  So, when I ask myself why I decided to jump back into practice, it is not because I feel like I can stop father time.  Rather, because in the challenges that are ahead for pension fund fiduciaries lies an opportunity to help that 2011 baby to age gracefully, with strength and wisdom to pass on to baby 2012.  Meeting that challenge is why I am here.

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