The effect of board composition on public sector pension funding

Chen, Gang; Kriz, Kenneth A.; Ebdon, Carol

doi:10.1108/jpbafm-27-03-2015-b003

Cited by 5 publications

(6 citation statements)

References 23 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Furthermore, Chen et al (2015) argue that a pension board composition is associated with public pension funding levels. They find that an increase in political appointees and employee members on the board of the pension fund increases the financial performance of pension funds.…”

Section: Factors Behind Pension Underfundingmentioning

confidence: 99%

“…How did state pension finances get so bad? Existing studies offer evidence of a mix of factors—generously defined pension benefit promises, poor actuarial estimates of retiree behavior and longevity, manipulations of accounting practices, excessive estimates of what pension fund balances could earn, and failure to make the necessary annual payments into the pension fund to support future benefits (Chen, 2018; Chen et al, 2015; Coggburn & Kearney, 2010; Novy-Marx & Rauh, 2011; Stalebrink, 2014). Because these factors may be manipulated by public officials for institutional and for private financial gain, it is useful to consider whether contexts with public corruption are at play and, hence, potentially exacerbate the underfunding of state pension plans (Andonov et al, 2018; H.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Public Corruption and Pension Underfunding in the American States

Liu¹,

Mikesell

Moldogaziev

2021

The American Review of Public Administration

View full text Add to dashboard Cite

Unfunded public pension obligations represent a great challenge for policy makers in the American states. We posit that a part of pension underfunding relates to the level of public corruption. Empirical findings in the article show that funding ratios in public pension funds are inversely related to the incidence levels of corruption in the state, with other fiscal, political, and institutional covariates held constant. We show that this can happen through higher pension benefits, lower actuarially required contributions (ARCs), lower percentage of actual ARC contributions, and poorer investment outcomes. Based on empirical estimates, we find that a reduction of corruption by one standard deviation around the mean would permit the states to save on pension benefits by 10.24% annually (or US$1,894.64 per recipient), increase required ARC by 4.40%, increase actual ARC contributions by 8.46%, and improve investment returns by 4.72%. Therefore, policies to reduce public-sector corruption, or to improve the insulation of pension funds in relatively more corrupt environments, can make a significant contribution toward tackling the public pension underfunding crisis in the American states.

show abstract

Section: Factors Behind Pension Underfundingmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Public Corruption and Pension Underfunding in the American States

Liu¹,

Mikesell

Moldogaziev

2021

The American Review of Public Administration

View full text Add to dashboard Cite

show abstract

“…A benevolent board member would take actions that are of the most benefit to others, regardless of outside factors. An ongoing issue in government is that politicians are often viewed as continuously running for re-election, which can often influence their decisions (Chen et al , 2015). It is therefore conceivable that the GFO/board member relationship can suffer from this same view, where the GFO views board members as only caring about staying in office and not about what is in the best interest of the municipality (only what is popular).…”

Section: Hypotheses Developmentmentioning

confidence: 99%

Financial information transfer in municipal government

Jones

Holmes

Fischer

et al. 2019

JPBAFM

View full text Add to dashboard Cite

Purpose The purpose of this paper is to investigate how trust, honesty and transparency impact the willingness and timeliness of communicating financial information between Government Finance Officers (GFOs) and members of the municipal boards they serve. Design/methodology/approach Survey data was collected from professionals who work with municipalities to ensure government resources are properly managed. Nonparametric local-linear regression was used to analyze the data. Findings Evidence suggests that trust in the board, GFO preference for honesty and greater transparency of the municipality influence the timeliness of communication. There is evidence that when the GFO and board members have a working relationship built on trust and the GFO has a preference for honesty, the GFO is more willing to share positive information with the board. In addition, there is evidence that with greater transparency and trust in the board, there is a reduction in the time of sharing positive information in situations where there is little discretion in disclosing and less willingness to share information. Research limitations/implications A principal limitation of this study is the small sample size. In addition, the study was conducted using only participants from the pool of members of the Government Finance Officers Association of Texas. As an exploratory study, the survey included a minimal number of questions to gather data from actual GFOs and included only six possible scenarios. The time constraint resulted in a reduced number of questions related to the models used. Other limitations include the potential of missing variables, factors or perceptions related to scenarios not presented in the survey instrument. Practical implications The findings suggest that with greater transparency, there is less time between the event and the GFO communication to the board providing the opportunity to improve the effectiveness of the decision-making process. Originality/value This study is the first to explore the effects of increased transparency on the level of communication between the GFO and the board.

show abstract

“…1. Homogeneity in actuarial assumptions is a strength of our study. The variability in optimistic actuarial assumptions is well-documented (Vermeer et al , 2010; Easterday and Eaton, 2012), and pension board governance has also been shown to influence assumptions (Chen et al , 2015). These concerns are mitigated in our sample with the use of governments from a multi-employer plan with homogeneity in actuarial assumptions.…”

Section: Notesmentioning

confidence: 99%

The effect of GAAP conformity on pension underfunding

Davidyan

Waymire

2018

JPBAFM

View full text Add to dashboard Cite

Purpose The purpose of this paper is to examine the association between conformity with generally accepted accounting principles (GAAP) indicated by Governmental Accounting Standards Board (GASB) 34 presentation and pension underfunding in Illinois. Design/methodology/approach The authors used a fixed effects regression and employed a sample of Illinois municipalities (n=2,565 municipal-year observations) over the period 2009–2014. Findings The findings show that GAAP is inversely associated with pension underfunding, but only among the subsample of municipalities that are within the healthy pension funding range, i.e., above 80 percent funded. These municipalities may be in a better position to increase pension funding in response to the disciplining effect of broad GAAP conformity. Research limitations/implications The paper focuses solely on one state and one multi-employer plan. Future studies should consider assessing the applicability of the results to other states and plan settings. Social implications The results inform the standard-setting process, particularly as the implementation of the new GASB standards is evaluated and as GASB 34 is reexamined. Originality/value Despite concerns associated with state and local pension underfunding, academic studies examining its determinants are few. The sample setting is representative of municipal pension plans in the USA (with a comparable average pension funding ratio of 74.2 percent) and provides variability in GAAP conformity (the state encourages, but does not require, financial statement presentation consistent with GASB 34), as well as homogeneity in actuarial assumptions across observations (all sample municipalities participate in a large multi-employer municipal pension plan). The sample period immediately precedes the implementation of GASB Statements Nos 67 and 68, which increase the scope of pension reporting, providing the opportunity to consider the effects of broad GAAP conformity and a baseline for subsequent consideration of the effects of the new standards.

show abstract

The effect of board composition on public sector pension funding

Cited by 5 publications

References 23 publications

Public Corruption and Pension Underfunding in the American States

Public Corruption and Pension Underfunding in the American States

Financial information transfer in municipal government

The effect of GAAP conformity on pension underfunding

Contact Info

Product

Resources

About