| While public attention in the United States in recent years has turned to the issue of government retirement programs, this attention has been primarily focused on America's ailing Social Security system. Unfortunately, public pensions at the state and local level are often overlooked. This oversight is unfortunate for at least two reasons. The first is that these public pension systems hold a vast amount of assets, totaling over {dollar}2 trillion, and cover nearly 11% of the American workforce. Moreover, a careful analysis of these systems can potentially provide models for alternative ways to administer Social Security in the future. We provide extensive quantitative analysis of how pension plan governance and behavior affects performance.; Plan governance is expected to affect performance because it strongly influences the incentives faced by decision makers in public sector pension systems. These incentives can get misaligned due to the agency problems that exist between decision makers, plan members, and taxpayers. Many of these agency problems are particular to public sector pension plans; decision makers are often pressed to make decisions with their political implications in mind. This study analyzes the relationship between governance structure and three measures of pension fund performance: risk adjusted rates of return, risk preference, and asset allocation. We find governance is strongly correlated with each of these measures. |
