Peter Landers and Brad Kelly, Partners at Global Governance Advisors presented pension board and corporate governance trends at the State Investments and Pensions Oversight Committee in New Mexico this month. The discussion focused on improving New Mexico’s state funds by proactively partnering with its pension boards to improve the oversight, performance, and sustainability of state pensions.
New Mexico currently has $12.5 billion in unfunded pension liabilities, according to Moody’s Investors Service, and the estimated, adjusted-net-pension liabilities for the US have a cumulative total of $1.6 trillion.
“Pension board dialogue and related legislation are significantly under-resourced,” said Peter Landers, Partner GGA. “Inadequate corporate governance can be a costly decision and we are grateful to be included in this discussion to provide clarity and help encourage informed action and positive change,” added Brad Kelly, Partner GGA.
Recent research out of Boston College shows that building a high-quality, public pension board can gain pensions 24 bps in their 10-year returns. Some key points to keep in mind when developing a public pension board include:
- Structure: One fiduciary board for both investment and administrative oversight.
- Size: Comprise the board of 6-10 members.
- Stakeholder Representation: At least one ex-officio member and only 20-70% active and/or retired participants.
- Financial Expertise: Include two members with financial or actuarial experience.
- Tenure: Engage board members with 8-10 years of tenure.
Studies have also shown that poor pension board governance can cost pension funds between one to two percent annually. Proper financial oversight, board composition and skills, as well as high-performance cultures with competitive compensation can aid pension funds in this regard.
Both Mr. Landers and Mr. Kelly look forward to continuing the discussion on pension fund board and corporate governance trends as part of the upcoming NCPERS Accredited Fiduciary (NAF) Program from October 26 to 27 in New Orleans.
“Effective board leadership is a vital issue for public pension plans,” said Hank Kim, Executive Director and Counsel of NCPERS. “When the New Mexico legislature reached out to us to present on public pension governance, we naturally turned to GGA to assist. Peter and Brad are well-regarded members of the faculty of NAF, one of our hallmark educational programs. NCPERS is delighted to have participated in the plan governance presentation as both the Public Employee Retirement System of New Mexico and the New Mexico Education Retirement Board are NCPERS members.”