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Joe Hornyak
Former editor of Benefits and Pensions Monitor and founder of Joe Hornyak Communications
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Underfunding Link Made To Governance
Two recent studies throw considerable light on the impact of board selection processes on the finances of U.S. public sector pension organizations, says Keith Ambachtsheer, president of KPA Advisory. In the article ‘How Peter Drucker Revolutionalized Canada’s Public Sector Penson System: Lessons for Americans’ in the Harvard Law School Forum, he says a 2017 study by Aleksandar Andonov, of Erasmus University Rotterdam; Rob M.M.J. Bauer, of Maastricht University and the International Centre for Pension Management; and K.J. Martijn Cremers, of the University of Notre Dame ?titled ‘Pension Fund Asset Allocation and Discount Rates’ published in The Review of Financial Studies, and a 2018 study by Andonov, Yael V. Hochberg; of Rice University; and Joshua D. Rauh, of the Standford Graduate School of Business; titled ‘Political Representation and Governance: Evidence from the Investment Decisions of Public Pension Funds’ published in the Journal of Finance, found 55 per cent of the board members of U.S. public sector pension funds are either appointed through some kind of election process or through ‘ex officio’ status requiring board membership by state or local officials (e.g., treasurer, comptroller, etc.) versus zero per cent in Canada and Europe. They show there is a statistically significant positive correlation between the proportion of board members elected or ‘ex officio’ and the degree to which the pension plan was underfunded and there was a statistically significant negative correlation between the proportion of board members elected or ‘ex officio’ and realized pension fund investment returns. In short, the findings of these two studies confirm the logic and power of the Drucker ‘legitimacy’ requirement in the governance of pension organizations, he says. When short-term political considerations become part of the pension governance mix, future generations of plan members and taxpayers are likely left holding the “short end of the stick” in the forms of higher contribution rates and lower pension benefits.
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Gallagher Acquires Buck
Arthur J. Gallagher?& Co. will acquire the partnership interests of Buck (BCHR Holdings, L.P.). Buck is a leading provider of retirement, HR, and employee benefits consulting and administration services. The organization has a long history, dating back more than 100 years, with a diverse client base by both size and industry. It primarily serves customers throughout the U.S.,?Canada,?and the UK.?The complementary strengths of Buck's defined benefit offerings, investment consulting, digital employee engagement platform, and international footprint will broaden, deepen, and enhance Gallagher’s client offerings.
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