Millions of state and local government workers and retirees participate in post-employment benefit trusts (i.e., trust funds used to accumulate resources for pension benefits or other post-employment benefits – OPEB) administered by state and local governments. Because pension trusts and OPEB trusts are used to pre-fund liabilities with differing characteristics, the decisions their trustees make regarding asset allocations and investments may differ; however, the underlying governance structure and investment principles outlined in this policy apply equally to both.1 Trustees and plan administrators are responsible for oversight of the asset
management of these plans.

Subject to applicable federal, state, and local laws, and judicial decisions, governance of investment programs is provided through the investment policy’s objectives and constraints established by the plan's fiduciaries.2 For most public-sector post-employment benefit trusts, the investment policy decisions are made by the board of trustees. Trustees are either appointed or elected by the participants, retirees, or sponsoring governments.

The actions of the fiduciaries are governed by statute or plan standards. For many plans, the fiduciary standards follow the prudent person of the common law, which requires each board member to perform his or her duties as a prudent person would when acting in a like capacity and in a similar situation.3

GFOA Position
The Government Finance Officers Association (GFOA) supports strong fiduciary standards set in law by state and local governments and the prudent investment of plan assets. Strong standards should be codified in governing statutes through the "prudent person" rule. This type of oversight holds plan fiduciaries to a high performance standard while not restricting their efforts to achieve the most efficient returns with appropriate risk. Finally, GFOA recommends that efforts to impose specific restrictions on the investments of public funds, such as legal lists and percentage limitations on particular asset classes, be avoided, as they generally result in inferior returns in the long run.

1 As OPEB trusts are relatively new, some are currently governed, at least for the time being, by a sole trustee (e.g., finance officer, treasurer) rather than by a board. Ultimately, however, the governance structure of an OPEB trust should evolve to resemble that of a pension trust. return

2 A fiduciary is an individual, corporation or association to whom certain property is given to hold in trust according to a trust agreement. In the case of post employment trusts, fiduciaries typically include the board of trustees and certain administrative staff who have discretionary decision-making authority such as the plan administrator and chief investment officer. return

3 It is important to note that defined contribution plans have their own fiduciary obligations.

• Publication date: June 2008