SPRINGFIELD (IRN) — A legal scholar who studies public and private investment funds says the people who are managing taxpayer-funded retirement plans are looking out for pensioners when they should be focused on what’s best for taxpayers.
Publicly funded retirement boards are responsible for directing pension investments. Historically, they’ve acted on behalf of the pensioners and soon-to-be-retirees that are paying into the fund. Ohio State University professor Paul Rose, who is Associate Dean for Academic Affairs at the Robert J. Watkins/Procter & Gamble Professor of Law, proposes that they should be acting on behalf of taxpayers because taxpayers are largely responsible for contributions and would be expected to foot the bill for any funding shortfalls.
In an article for the Illinois Law Review, titled “Public Wealth Maximization: A New Framework for Fiduciary Duties in Public Funds,” Rose said the shift of focus may not ultimately result in higher pension funding levels, but it would be acting at the behest of those who would ultimately face exposure to a fiscal downturn.
“Fiduciary duties should flow to the true risk-takers: the public – the current and future citizens and residents – who will ultimately benefit or suffer from the investment choices of the public fund trustees,” Rose wrote.
“The real residual risk bearers for the failure of the pension funds are really the taxpayers,” Rose said.
On one hand, this could be seen as a call to reduce liability on taxpayers. On the other, it should also mean investing in the public good.
“You have this broader view of ‘what’s going to affect citizens? What’s going to affect taxpayers, now and in the future?’” Rose said, steering more equity toward socially responsible investments, like renewable energy over fossil fuels to reduce negative side effects, for example.
Pertinent to Illinois, Rose said a shift in focus to taxpayers would suggest pension fund managers would advocate more toward responsible rewarding of benefits at the potential cost of political support from vested public beneficiaries.
“You’d have the government making sure that you weren’t writing checks that you couldn’t cash later,” Rose said.
Illinois’ minimum required pension payment is one quarter of the entire state budget.