Who’s Making Decisions About Your Pension Fund?

Some states are pushing to replace educator representatives on pension trustee boards with political appointees. They claim it’s to restore health to the funds, but research shows that boards with strong member representation deliver better pension fund earnings.

The Tennessee state senate approved a bill this month that would strip the Tennessee Education Association of its ability to designate members to serve on the board of the state’s pension system. At the same time, the bill gives expanded authority to politicians, including the speakers of the Senate and House.

“Bills like these don’t help a single child, they don’t raise a single test score and they don’t help move education forward in Tennessee,” said State Senator Eric Stewart (D-Belvidere). “When it comes to education reform, we should be inviting teachers to the table. These bills push teachers away.”

They also push money away from the pensions.

Research shows that pensions perform better when plan participants – like public school educators who have a direct stake in the health of the fund — sit on the board as trustees.

“You simply look at things through a different lens and have different motivations when it’s your own money,” says Nancy McKenzie, a senior pension specialist at NEA.

Retirement system boards can include three types of trustees: representatives of plan beneficiaries, ex officio members (government officials who become members of the board because of their office or position), and political appointees. The National Education Association (NEA) advocates that every board include trustees elected by active and retired plan members, and that this group should constitute a majority of the board.

But in the wake of the economic meltdown, proposals to reduce the numbers of plan members on state pension boards have cropped up. Proponents of such measures maintain that “member” trustees are novices who lack investment knowledge critical to the continued health of the systems – even though they receive ongoing financial management training, and have access to financial experts who help them make sound investing decisions.

Still, in New Hampshire Republicans proposed reducing the number of public employee seats from 8 to 4, claiming that because the public employees had no financial experience, the fund suffered as a result.

Similar measures were introduced and defeated in Alabama and Colorado, but some say new proposals could remerge there and elsewhere because of the current political environment.

While it’s true that many public pension funds had significant investment losses in states across the country, the problem isn’t lack of financial expertise among the plan participants on the pension boards, says Boston University Law School Associate Professor David H. Webber.

If lack of financial know-how is the cause of the collapse of public pension funds, then what caused the collapse on Wall Street? “Would it be better if state pension boards had the financial expertise of Lehman Brothers?” he says.

Governors and state legislatures would like to blame the public employee board members for the performance of the funds as a way to take back control, but the research doesn’t back them up.

What Does the Research Say?


Yale law professor Linda Romano conducted a statistical analysis of 50 public employee retirement plans and found that earnings were much better when the boards were independent, rather than political.

According to Romano, board members elected by plan participants are less susceptible to political pressure because their personal retirement funds are at stake and their positions don’t depend on the good graces of state officials. She also found that government official trustees on pension boards raised serious conflict of interest problems because the fund becomes an “inviting target” for state officials seeking money for other state projects, especially in times of fiscal difficulty.

“Research is clearly on our side on this issue,” says Carole Wright, who is speaking as an individual, but is also a retired educator and board chair of the Public Employee Retiree’s Association of Colorado. “Boards made up of members achieve better results because of our devotion to fiduciary duty.”

When there are too many political appointees and politician board members, there is too a high risk for “pay to play” issues.

“You’ve got people who want to hire the politically popular vendors, who might provide rewards with everything from a game of golf, to major contributions to your campaign or to the campaign of the politicians who appointed them,” Wright says.

In California, elected officials who serve on the state pension board have been accused of soliciting campaign contributions from service providers, and in New York, former New York State Comptroller Alan Hevesi who pleaded guilty in a pay-to-play scandal at the state pension fund he once ran, will go to prison for as many as four years.

Hevesi admitted giving preferential treatment to a service provider, approving $250 million in pension-fund investments in exchange for almost $1 million in gifts, including $75,000 in travel expenses, $380,000 in sham consulting fees for a lobbyist, and more than $500,000 in campaign contributions.

The case of Hevesi is extreme, but the politicization of public pension funds is a real risk when the composition of the board leans more toward political appointees and away from plan participants.

“That’s why you want a board where the public employees represent the majority,” says Webber. “The ideal composition of a pension board is one that is the most motivated.”

He says it all boils down to skin in the game, a term coined by Warren Buffet to describe the situation where corporate executives use their own money to buy stock in the company they’re running to gain the best stock performances.

“Nothing motivates more than skin in the game,” says Webber.

  • Cindy Nemecek

    NEA needs to get the word out about the unfair attack on teacher pensions. Here in California, state employees whose jobs do not require a college education enjoy much larger pensions and earlier retirements than teachers with post-graduate degrees and continuing credentials.
    Some city and state workers whose jobs don’t come close to the stress level, responsibility, and time investment of teaching enjoy better pensions than teachers who often burn out after the first 5 years despite being burdened with huge student loans that many state workers never have to worry about. After a week of 30 minute lunches (usually spent with students), grading papers, contacting parents, and planning at nights and on weekends, people wouldn’t begrudge teachers expecting to be able to retire someday like most college educated professionals.
    Why are teachers being attacked before these other workers? Governor Brown protects prison workers while putting teacher pensions on the bargaining table. Police officers and dispatchers can retire at 50 and use a technique called “spiking” to end up with 100k pensions, yet they are protected. Teachers, on the other hand, are expected to cough up and weaken their unions in California and many other states.
    People say they only oppose unions because of the bad teachers, but not a single good teacher at a non-union charter school makes what he or she deserves, or gets the benefits that he or she deserves. If we destroy the unions, we hurt all teachers, even the good ones. Just because there are bad cops, the Republicans aren’t out to destroy police unions!
    Just because there are perverted congressmen doesn’t mean we will stop paying and giving benefits to all of THEM!!!
    I know non-union teachers don’t get the pensions they deserve. Good teachers pay the price when unions are broken. No amazing teacher at non-union private or charters gets the pay or benefits of a public school teacher in the same state (except maybe in South Carolina, where they have no unions).
    NEA, get the word out there! I’d love to be a cyber-lobbyist, but I have no time while I’m teaching!!!
    a dedicated teacher

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  • J. Clark

    Alabama legistlature has been really making hurtful decisions this legislative session. First they fire 1,100 teachers. Second they increase the amount of our salary going into the pension fund by 2.5%. For My husband and I being both teachers, this means we will lose a combination of over $3,000.00 of our yearly salary. That is not all. we combine our health care allocations and we are being penalized by increasing our monthly health care to over $ 390.00 per month. This again will decrease our yearly combined salary by another $4,600.00. So our combined salary will be decreased by $7,600.00. We are paying for our daughter’s college education. No one else is assisting. We do not qualify for government pell grants so we are not sure of what to do. I have been teaching for 27 1/2 years and my husband 24 1/2 years. We now get a notification that if you retire after December 31st of this year you will be penalized 1% per year you are away from 65 years of age. I do not want to teach for another 12 or 13 years neither does my husband. He is 6 years older than me so we are so upset that we are at the age and time where our daughter has three more years in college and we have decided to stay those three years but we are being penalized from all sides that we may have to quit teaching and go into some other line of work to make ends meet. UNFAIR UNFAIR UNFAIR ….. But our legislators are using the money out of the education trust fund to give it away as tax breaks for foreign companies and other multibillion dollar businesses pay nothing in taxes that goes to schools. No wonder we are down in the bottom of education. We have a bunch of lunatics running the show. We voted for the republicans and now we are suffering. Shows that both parties do not have any sense when it comes to education the population’ s children. They use the teachers as whipping boys! Enough is enough.

  • Jerry Finch

    I am a retired 30 year teacher from Wisconsin, and a life member of the union, I would like the WEAC and NEA, who are at war with our legislature, to acknowledge that Wisconsin has one of the strongest and best managed public employee pension funds in the US, indeed in the world. Contrary to what has been reported, our pensions are not in danger.
    The current political strife in our state has little to do with pensions and not much to do with children’s education, but a lot to do with expected (voluntary) decline in union membership that may happen under the new law. This, of course, will reduce the PAC money that the union controls. As an education professional, I am appalled at the propaganda the WEAC has been spreading in an effort to retain access to this money and political power.

  • Leon H. Flanagan

    In New Jersey there is a nine member Pension Board, six are elected Trustees and three and the governor’s appointees. I am the current Chairperson once again. I am a New Jersey Education Association employee, We control all Public Employees. It is called the PERS. TPAF is the teachers pension Annunity Fund

  • Sandy Magill

    If politicians wish to have political appointees attend to teacher retirement funds because they have more knowledge on how manage money better, have these appointees manage state budgets. Maybe states would not be in such a bind. Keep political appointees away from my pension fund.

  • erroll Giddings

    Has teaching become a temporary part-time job? Twenty years ago, in Denver Colorado, The Denver School board began underfunding the retirement program. The Board, DPS, said it didn’t have funds for all the regular and special programs. DPS promised to make it up. This continued year after year, and it finally became clear that the pension fund was underfunded. So, DPS mortgaged most of the schools to make up the loss. Some of the money from the mortgage made it to the pension fund, but a third was lost. Hundreds of millions of dollars lost somewhere between the refinance and the pension fund.
    During this time, the union approved a ninety day program for teacher termination which has quickly reduced the number of teachers who will reach retirement. The Board was right in under funding the retirement program. Under the present plan, few teachers will receive their DPS retirement. New teachers are kept for short periods of time. Most ‘Teach for America’ educators only last two years, and Colorado law allows any teacher to be non-renewed after their first three years. Charter schools are hiring anyone who can pass a background check, and a degree is not required. DPS has approved more than fifty new charter schools, and older DPS teachers have to accept the charter schools’ employment guidelines. Yes, in Colorado, teaching has become a temporary part-time job.