Table of Contents

Foreword

Introduction

PART I

Introduction and Current Marketplace

1   History of Public Pensions

Introduction

Early Pension Development

Public Pension Development

Early Twentieth-Century Development

Late Twentieth-Century Development

Chapter Notes

2   Public Pension Marketplace

Introduction

Global Retirement Market

Global Pension Trends

Population Aging

Global Regulatory Environment

U.S. Retirement Market

U.S. Public Pension Market

Members and Beneficiaries

Pension Coverage and Type

Public Pension Revenue

Public Pension Expenditures

U.S. Public Pension Trends

Public Pension Funding

Addressing the Funding Gap

Design Shift

Chapter Notes

PART II

Pension Plan Design

3   Defined Benefit Model

Introduction

Public Pension Designs

Defined Benefit Plan Design

Regular Service-Related Benefits

Normal Service Benefit

Early Retirement Benefits

Postemployment Benefit Adjustments

Service Credits

Ancillary Pension Benefits

Healthcare Benefits

Disability and Death Benefits

Deferred Retirement Option Plan

Pension Benefit Adequacy

Replacement Ratio

Social Security Coverage

State Tax Liability

Chapter Notes

4   Actuarial Valuation Concepts

Introduction

Actuarial Valuation

Demographic Assumptions

Economic Assumptions

Actuarial Cost Methods

Cost Method Classifications

Actuarial Cost Methods

Impact of GASB Changes

Chapter Notes

5   Beyond Defined Benefit

Introduction

Defined Contribution Plans

DC Plan Types

DC Plan Services

DC Investment Options and Services

Comparison of DB and DC Plans

Persistence of the DB Design

Disadvantages of Defined Benefit

Advantages of Defined Contribution

Disadvantages of Defined Contribution

Pension Design Risk: DB vs. DC

Hybrid Plan Designs

Side-by-Side (or DB+DC)

Cash Balance Plan

Alternative Hybrid Designs

Chapter Notes

PART III

Investment Policy and Implementation

6   Investment Policy

Introduction

Investment Policy Statement

Statement of Goal, Purpose, or Mission

Identification of Decision-Maker(s)

Statement on Managing Risk of Overall Portfolio

Performance Measurement and Evaluation

Legal Standards

Chapter Notes

7   Asset Allocation Policy

Introduction

Why Asset Allocation Policy Matters

How Asset Allocation Policy Is Set

Peer Comparison

Mean Variance Optimization (MVO)

Determining Eligible Asset Classes

Establishing Capital Market Assumptions

Finding an Efficient Frontier

Choosing an Optimal Asset Allocation

Asset Liability Management (ALM)

Chapter Notes

8   Public Pension Portfolio

Introduction

Asset Allocation Data

Asset Allocation Trends

Equities

Fixed Income

Alternative Assets

Private Equity

Hedge Funds

Real Estate and Infrastructure

Environmental, Social, and Governance

Increasing Overall Portfolio Risk

Chapter Notes

9   Public Pension Performance

Introduction

Public Pension Performance

Performance Attribution

Performance Variation

Asset Class Performance Characteristics

Performance Benchmarks

Performance vs. Benchmark

Chapter Notes

10   Public Pension Contributions

Introduction

Contributions as Pension Revenue

Contribution Funding Policy

Annual Required Contribution

Managing Contribution Volatility

Funding Policy Best Practices

Employer Contribution Indices

Employee Contributions

DC Contributions

Chapter Notes

PART IV

Plan Governance

11   Governance Structure

Introduction

Legislative Oversight

Common Governance Structures

Governing Fiduciaries: Trustees

Board Composition

Core Competencies and Education

Financial Expertise

Diversity (Race and Gender)

Committee Structure

U.S. Sovereign Wealth Funds

Chapter Notes

12   Why Governance Matters

Introduction

Impact on Performance

Impact on Asset Allocation

Impact on Funding

What Fiduciaries Think

Chapter Notes

Appendix: Sample “Best Practices”

NCPERS Best Practices

GFOA Best Practices

Clapman Report 2.0

13   Fiduciary Responsibility

Introduction

ERISA Exemption and Relevance

Duties of a Fiduciary

Duty of Prudence

Duty of Loyalty

Duty of Impartiality

Duty with Respect to Delegation

Duty with Respect to Co-Trustees

Duty to Furnish Information to Beneficiaries

Duty to Segregate and Identify Trust Property

Trustee Liability

Chapter Notes

14   Public Pension Staff

Introduction

Pension Staff Overview

Pension Staff Studies

Passive vs. Active Management

Internal vs. External Management

Compensation

Pension Consultants

External Managers

Investment Policy

Manager Selection Criteria

Research on Manager Selection

Chapter Notes

15   Delegation and Pension Evolution

Introduction

Prudent Investor Rule

Delegation Redefined

Five Parameters of Prudent Delegation

Public Pension Evolution

Chapter Notes

16   Federal Pension System

Introduction

Federal Civilian Employees

Civil Service Retirement Disability Fund

Eligibility

Federal Retirement Benefits

The Thrift Savings Plan

Military Personnel

Military Retirement Fund

Eligibility

Active Retiree Benefits

Reservist Benefits

Disability Retirement

Ancillary Military Benefits

Chapter Notes

Endnotes

Index