a) The fact that the sponsor has a legitimate interest in the effective management of the retirement system; and
b) The fact that the retirement system must be managed in the best interests of the beneficiaries and therefore must be protected from undue political influence.
Balancing the above issues in effect requires joint trusteeship in the administration of retirement systems.
2) If both an appropriate governance structure (as described above) and the necessary reporting to the sponsor are in place, the sponsor should be prepared to grant the board of a retirement system the authority it requires to administer the system most effectively, include budgeting and hiring authority, as granting such authority is in the best interests of both the sponsor and the beneficiaries. See the Uniform Management of Public Employees’ Retirement Systems Act (UMPERSA) for additional support.
3) Best practices in the administration of a retirement system by a board include the following:
a) Documented responsibilities that provide a clear and meaningful distinction between the roles of the board and management.
b) Boards best serve the Retirement System when they focus on oversight and policy, as opposed to operational details and activities.
c) Given the complexity of public retirement systems, effective governance demands prudent delegation of authority to staff.
d) Board delegation must be accompanied by appropriate policy guidance and supervision.
e) The Board has power and authority as a group, not as individuals.
f) Consensus in decision-making is a desirable, but not necessary, feature of Board governance. Individual integrity and diversity of views in decision-making are essential.
g) A linear organizational structure best supports accountability and excellence in the governance and administration of a System.
h) Well defined reporting and monitoring practices must be established and implemented to serve both the retirement board and the sponsor.
4) We believe that the following governance
tools are essential to creating a governance structure that will support the
principles stated above:
a) Roles and Responsibilities: Clear roles and
responsibilities should be documented for all key parties involved in the
decision-making process, including the Board, Board Chair, Board Committee,
Chief Executive Officer, and key service providers. Such documents are essential in demonstrating
prudence by the Board in delegating powers to staff and advisors.
b) Governance Policies:
The Board should establish a comprehensive policy framework that
documents its position on important issues such as board operations, the
selection of service providers, conflicts of interest, ethics, risk management,
and planning.
c) Controls Systems: The Board should establish a system of checks
and balances, including the use of external third parties to verify certain
aspects of the administration and operation of the fund, including investment
performance measurement, auditing of financial statements, asset/liability and
other studies.
d) Knowledge and Skill:
There should be a commitment to a high standard of fiduciary knowledge
and skill. This involves mechanisms to
provide ongoing fiduciary education to ensure that trustees have the knowledge
necessary to effectively carry out their roles and responsibilities.
e) Monitoring and Reporting:
The Board should have a documented monitoring and reporting framework
clearly establishing the board’s expectations on the information it is to
receive from management and from third-party advisors. Specifications for reporting must include
content, form and frequency. Review of
the framework by the Board, over time, can help to identify gaps or overlaps in
reporting.v