Public Pensions Need Transparency from All Parties

Earlier this month, the National Conference on Public Employee Retirement Systems (NCPERS) announced that public pension plans will begin asking their service providers to commit to a new set of ethical guidelines designed to protect the interests of plan participants and beneficiaries.

The NCPERS Code of Conduct for Public Pension Service Providers sounds very similar to requirements spelled out by the Employee Retirement Income Security Act (ERISA) and points made in the Department of Labor’s recent proposal for a new definition of fiduciary. The code includes items such as “Fully disclose to public plan clients conflicts of interest that arise that may impair the ability to act independently or objectively,” “Act with reasonable care, skill, competence, and diligence when engaging in professional activities,” and “Fully disclose to public plan clients all fees charged for the products or services provided to said client.” 

Kevin Kidwell, vice president of tax-exempt sales at OneAmerica in Indianapolis, Indiana, tells PLANSPONSOR many states have adopted ERISA-like language in their trust law. He says an attorney at a conference he attended put the number at 35 states. “Even in those states where they don’t have full disclosure [rules], we have seen a movement to a best practices type approach parallel to that of 401(k)s,” Kidwell says. He adds that, when fee disclosure rules were adopted for ERISA-governed defined contribution plans, OneAmerica built the service for all plan types.

According to Kidwell, any weakness in protections for public pensions probably comes from the availability of professional help for smaller plans. “Retirement law is incredibly complicated. Then there are procurement rules and state requirements above and beyond ERISA-like requirements. Small plans could use more sophisticated help than they are currently getting,” he says.

However, most service providers are committed to acting ethically. Bill Yoerger, president of Retirement Services at OneAmerica, also based in Indianapolis, says, “As an organization, [OneAmerica is] for acting in a professional manner with full transparency. We help any employer help employees get to a dignified retirement.”

Gregory Seller, of Gregory Seller Consulting, an independent consultant specializing in public and private pension advocacy, plan architecture and design, and thought leadership for public pension policy, agrees with the viewpoint that many public plans are seeking ERISA-like protections and relationships with vendors, and says most public and private pension professionals would certainly agree that most of the points in NCPERS Code of Conduct should be expected of any professional entity operating in the public pension arena. But, he says a code of conduct should also apply to public retirement systems.

He tells PLANSPONSOR the code is very one-sided. “Public pension systems also have an obligation to fully disclose the facts, including a more realistic measurement of potential costs to all stakeholders,” he says in an article forwarded to PLANSPONSOR.

Seller argues that studies about public pensions’ progress in meeting assumed rates of return and estimates of long-term costs and sustainability need to be conducted by every public retirement system, and the results need to be shared with all stakeholders. Public retirement systems also need to act with “independence and objectivity” in developing alternative plans of action if the assumptions turn out to be wrong, he says, and those alternatives should be openly debated by all stakeholders.

Seller sees another agenda in NCPERS Code of Conduct. The last two items say service providers must not advocate for the diminishment of public defined benefit plans, and must fully disclose all contributions made to entities enumerated in Schedule A that advocate for the diminishment of public defined benefit plans. “Any attempt to ‘muzzle’ healthy discussion of public pension plan designs or alternatives is just bad public policy,” he tells PLANSPONSOR.

“It is this type of behavior, and the failure to engage in honest and objective discussions of defined benefit plans that is feeding taxpayer angst about public sector pension plans,” he says in his article.