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Public Sector Pension Governance and Performance

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  • Olivia S. Mitchell
  • Ping Lung Hsin

Abstract

This paper investigates the determinants of public sector pension plan investment and funding behavior. Its goal is to draw lessons which may be used to improve the design and governance of public pensions. Plan performance is related to characteristics of the pension systems' governance structure and authority, using a new survey of U.S. state and local public pension plan governance practices and performance outcomes. The study suggests that most large public pension systems funded their plans satisfactorily in 1990, but some did not. Better public pension funding was associated with a pension system having in-house actuaries and when pension Board members were required to carry liability insurance. In contrast, public pension funding was lower when states experienced fiscal stress, and when employees were represented on the pension system Board. Pension funding did not appear sensitive to statutes guaranteeing benefits or funding levels, nor by the ability of states to carry budget deficits from one year to the next. The results also suggest that public pension Boards having more retiree-Trustees experienced lower investment returns, as did public sector pension plans required to devote a portion of their assets to in-state investments. Returns did not differ depending on whether a pension Board had in-house, or external money managers. No single set of pension plan management practices can optimize plan performance for all systems across all time periods. Nevertheless, these results suggest that care must be taken when designing the regulatory and investment environment in which these plans operate.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4632.

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Date of creation: Jan 1994
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Publication status: published as in The Economics of Pension; Principles, Policies, and International Exper-ience.ed. Salvador Valdes Prieto. Cambridge: Cambridge University Press, 1997.
Handle: RePEc:nbr:nberwo:4632

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References

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  1. Annika E. Sunden & Olivia S. Mitchell, . "An Examination of Social Security Administration Costs in the United States," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 94-7, Wharton School Pension Research Council, University of Pennsylvania.
  2. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 1-24, March.
  3. Olivia S. Mitchell & Ping-Lung Hsin, . "Public Pension Governance and Performance," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 94-1, Wharton School Pension Research Council, University of Pennsylvania.
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Cited by:
  1. Impavido, Gregorio, 2002. "On the governance of public pension fund management," Policy Research Working Paper Series, The World Bank 2878, The World Bank.
  2. Vittas, Dimitri & Impavido, Gregorio & O'Connor, Ronan, 2008. "Upgrading the investment policy framework of public pension funds," Policy Research Working Paper Series, The World Bank 4499, The World Bank.
  3. Olivia S. Mitchell, . "Administrative Costs in Public and Private Retirement Systems," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 96-4, Wharton School Pension Research Council, University of Pennsylvania.
  4. Michael Useem & Olivia S. Mitchell, 2000. "Holders of the Purse Strings: Governance and Performance of Public Retirement Systems," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 00-08, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. Impavido, Gregorio & Musalem, Alberto R. & Vittas, Dimitri, 2002. "Contractual savings in countries with a small financial sector," Policy Research Working Paper Series, The World Bank 2841, The World Bank.
  6. Michael Useem & David Hess, . "Governance and Investments of Public Pensions," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 99-11, Wharton School Pension Research Council, University of Pennsylvania.
  7. Arrau, Patricio & Schmidt-Hebbel, Klaus, 1995. "Pensions systems and reform : country experiences and research issues," Policy Research Working Paper Series, The World Bank 1470, The World Bank.
  8. Olivia S. Mitchell & John Piggott & Cagri Kumru, 2008. "Managing Public Investment Funds: Best Practices and New Challenges," NBER Working Papers 14078, National Bureau of Economic Research, Inc.
  9. Mitchell, Olivia S., 1993. "Publicpension governance and performance : lessons for developing countries," Policy Research Working Paper Series, The World Bank 1199, The World Bank.

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