Saving Government Pensions with Better Legal Standards

Millions of government employees are counting on the funds from their government pension plans to get them through their retirement years. But a potential economic crisis looms.  Many state and local pension systems teeter on the brink of financial disaster. What is more, there is no federal oversight of the asset managers controlling the $3 trillion in these funds. New research from T. Leigh Anenson at the University of Maryland’s Robert H. Smith School of Business examines how the fiduciary relationship between trustees and beneficiaries could safeguard against the risk that Americans working in the public sector may lose their retirement savings.

Public retirement systems for state and local employees in the U.S. are usually defined benefit plans administered by a government-designated board of trustees. Government employees – the beneficiaries of the pensions – must rely on the honesty, integrity, and judgment of the boards in managing their assets.  Recent scandals involving fraud, bribery, and corruption of public pension officials place these retirement assets in jeopardy.

Anenson’s approach is to hold pension board members to high standards of individual accountability while still giving them enough flexibility to manage the funds effectively. She calls for stronger laws to redefine the obligations these boards have to the government workers relying on them. Anenson draws a connection from the centuries-old system of equity, where standards instead of rigid rules are used to encourage ethical behavior.  Anenson argues that viewing fiduciary law from its historic home in equity is the best way to remedy fraud and opportunism and to otherwise promote good public pension governance.

“Public Pensions and Fiduciary Law: A View from Equity,” is forthcoming as the lead article in the University of Michigan Journal of Law Reform.

Leigh Anenson is an associate professor of business law in the Logistics, Business and Public Policy department at the Smith School. She is a co-founder and associate director of the Center for the Study of Business Ethics, Regulation, and Crime (C-BERC) and an affiliate faculty of the University of Maryland’s Department of Criminology and Criminal Justice.

Research interests: Equity jurisprudence, rethinking the role of ancient equitable principles in contemporary court practice; pension law and policy in the public and private sectors; and attorney liability, analyzing liability issues for attorneys in the business of litigation.

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