Does Public Pension Board Composition Impact Returns?

U.S. state and local pension funds manage over $4 trillion in retirement assets for 20 million active and retired plan members. Given the significance of these funds, proper oversight is vitally important to government officials, plan participan ts, and taxpayers alike. The challenges to effective pension fund governance have been well documented, and significant research has demonstrated that the characteristics of pension boards matter. This brief summarizes public pension fund governance, discusses key aspects of public pension boards, and presents additional evidence that a well-designed board relates to better plan outcomes. The brief proceeds as follows. The first section provides background on the primary responsibilities and authority entrusted to public pension boards. The second section discusses key factors that influence board effectiveness – structure, composition, si ze, and member tenure. The third section builds a “Board Effectiveness Index” by scoring plans across these factors, and demonstrates a positive relationship between the Index and plan 10-year investment returns. The final section concludes that public pension funds may be best served by taking a holisti c view of the many aspects of a board that contribute to its effectiveness, rather than focusing on any single feature.