RVK consultant: center fiduciary duty when redesigning pension boards; two models carry tradeoffs

Jim Vojko, president emeritus of RVK, told the Retirement Study Council on July 8, 2024, that the “central duty” of any public pension board is fiduciary duty and that structure should be judged on whether it enables trustees to execute that duty.

Vojko opened by saying, “A board of trustees under common law is not a legislative body. It has a very specific duty, and that is fiduciary duty.” He urged the council to begin structural questions by defining the core duties and the state’s values for the pension system.

Nut graf: choices about whether to combine investment and benefit administration under one board or to separate investments into a dedicated board affect the focus, transparency and operational demands of oversight; neither model is a universal solution, he said.

Vojko described two common structures. The integrated model (the most common) places investment oversight and benefit administration with the same board. The separate “board of investment” model moves investment authority into a stand‑alone investment body; Vojko cited Montana and Oregon as examples where the constitution or statute places investments with a separate board that manages multiple state funds.

He summarized strengths and weaknesses: a separate investment board can concentrate expertise and staff on investments and produce high transparency across state funds, but it can create a single point of investment decision‑making and requires mechanisms to serve multiple client plans. An integrated model distributes investment risk across multiple pension boards and keeps investments close to plan administration, but it also requires each pension board to maintain or procure sufficient investment expertise.

On appointments and representation, Vojko described two seat types: representative seats (elected by or representing beneficiaries or other constituencies) and open/independent seats (appointed without a constituency tie). He urged the council to decide how many seats should be representative, how many independent and what confirmation or training requirements should apply.

Vojko gave a concrete example of a statutory restructuring he said occurred in the early 2000s: a large, representative board was replaced with a five‑member governor‑appointed, senate‑confirmed board whose majority must be nonmembers of the system and where three members must demonstrate business/investment experience; the board retained one representative seat for public employees and retirees. He used that case to illustrate how legislatures can prioritize independence and experience when they redesign governance.

Questions from council members touched on tradeoffs and whether board structure or the individuals serving matter more. Representative Bennett asked whether paying trustees attracts better candidates; Vojko said few U.S. trustees are paid but noted an Ohio example where a reconstructed board was paid following reform.

Ending: Vojko recommended the state step back to define fiduciary goals and values before choosing a composition and emphasized that changes to board composition tend to be slow and often follow notable adverse events.