A Global Perspective on Financial Regulation
Edited by John Evans, Michael Orszag and John Piggott
Chapter 2: Pension Fund Governance: Expertise and Organizational Form
Gordon L. Clark* 1. INTRODUCTION Pension funds are remarkable institutions. In the Anglo-American world, public and private pension funds provide employer-sponsored pension benefits, including defined benefit, defined contribution and hybrid schemes. These are vital supplementary institutions given the modest value of most countries’ social security benefits (Emmerson 2003; Munnell 2003). Charged with the responsibility of protecting and, in some cases, insuring beneficiaries’ promised retirement income, pension funds are institutions that must be governed.1 Golden rules such as the exclusive benefit rule do not always resolve the dilemmas, conflicts of interest and reasonable doubts over the proper course of action facing pension funds (Clark 2006). Those who are knowledgeable about pension funds and related institutions will readily acknowledge this as a fact of life;2 those more removed from the practice of decision making in trust institutions and drawn to parsimonious recipes of institutional form in economic theory may find the argument contentious (see, for example, Jensen 2000). Historically, trustees have had considerable discretion (in the scope of decision making) when exercising their responsibilities (protecting the welfare of beneficiaries). Given the covenant or mandate of each fund when established, and given the presumption in favour of supervision as opposed to direct regulation, trustees have wide-ranging powers consistent with the English common-law trust institution (Langbein 1997). Discretion with responsibility provides an opportunity for plan-specific, efficient and equitable solutions to retirement income provision, perhaps more so than if the state were to regulate plan decisions directly. Over the twentieth century, however, legislation became...
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