Virtual File - Item

Text: October 13, 2017

Mr. Jim Nobles, Legislative Auditor
Office of the Legislative Auditor
658 Cedar Street, Room 140
St. Paul, MN 55155

Dear Mr. Nobles:

As Chair of the Legislative Commission on Pensions and Retirement, I am writing to request that you
review the composition of the governing boards of the Minnesota State Retirement System, the Public
Employees Retirement Association, and the Teachers Retirement Association. In looking at the
composition of the governing boards, please also investigate compliance with the relevant statutory
requirements, specifically Chapters 352 (for MSRS), 353 (for PERA), and 354 (for TRA) of the
Minnesota Statutes, and consider whether these requirements are sufficient and consistent with current
best practices for public pension plan boards.

Also, even though the boards of MSRS, PERA, and TRA have no decision-making authority with regard
to the investment of plan assets, each board member does have fiduciary duties regarding oversight of the
array of benefits offered by each plan, compliance with statutes, reasonableness of administrative
expenses, and monitoring plan administration and actuarial valuations, among other duties. Accordingly,
please include in your review consideration of the requirements of Chapter 356A of the Minnesota
Statutes and board member compliance with these requirements.

Specifically, please include in your report the following:

1. The enclosed information sheet summarizes the statutory requirements regarding the membership
of the three boards. Do you have any recommendations regarding whether the number of members, the
types of members, and the member appointment and election processes are appropriate or whether they
should be changed, perhaps to be consistent with best practices?

2. We are aware that many board members hold officer positions in a union. The Public
Employment Labor Relations Act (PELRA) specifically states that pension contributions and benefits are
not terms and conditions of employment subject to bargaining. How influenced are board members by
organized labor? Is any influence appropriate and should union officers be board members? Do you have
a recommendation based on best practices for public pension plan boards?

3. Are employers adequately represented on the boards? In the context of the pension funds,
employers are the agencies, municipalities, counties, school districts, and other public entities who
employ the employee members of the pension plans and whose budget must include funding for the
employer contributions to the respective pension plans. Do you have a recommendation for the number
of employer representatives on each board or suggestions on how to ensure that the employer perspective
is adequately represented?

4. Are current statutory requirements likely to ensure that members do not have conflicts of interest
or, if they do have such conflicts, do the boards have effective policies in place to ensure members do not
participate or vote on matters in which they have a personal financial interest? Please provide
recommendations on how to address conflicts of interest, especially the conflict that exists for each
member who has a public pension benefit, when a board member is asked to consider benefit reductions
or modifications?

5. MSRS and PERA boards statutorily requires that one or more members are "public members
knowledgeable in pension matters"? How would you assess whether any board member has any expertise
in pensions or retirement benefits? Are current disclosure and procedures adequate to ensure that the
boards have members with this expe1iise? Would you recommend a similar position on the board of
TRA? In addition to pension expertise, should there be a requirement that members, or at a minimum,
one member, have financial or actuarial expertise? Do members receive training on how to read and
understand actuarial concepts and rep01is and is the training effective?

6. Are board members prepared and trained in their fiduciary duties and to whom they are
responsible? Minnesota law states that the fiduciary of a covered pension plan owes a fiduciary duty to
plan members, taxpayers, and the state of Minnesota. We are not aware of any other state that imposes
such potentially conflicting duties on their fiduciaries, nor, we understand, does the federal law known as
ERISA, to which all pension and retirement plans in the private sector is subject. Other state and federal
law imposes only the duty to members and the plan, generally. Have the plans' board members been
given training on how to act for the benefit of these three stakeholders whenever it makes a fiduciary
decision? Is the training effective? How would board members assess whether a particular action is in
the best interest of the state or its taxpayers? Do you have any recommendations based on best practices
for public pension plan boards?

7. In the corporate world, independence is defined as having no economic or personal relationship
with the corporation or its management. The benefits of independence include being able to offer an
unbiased, fresh approach to a topic and experience with problem-solving in other contexts. Would there
be value in incorporating this concept into the public plans' governing boards, where independence is
defined as not being employed in the public sector by a public employer and not having a pension benefit
from one of the public pension plans? Do you have a recommendation based on best practices for public
pension plan boards?

We have also enclosed, for your information, selected publications and a recent article that may serve as a
starting point in your review.

I appreciate your attention to this request. Please provide at least an initial draft of your report by the first
day of the 2018 legislative session. I hope to be able to work with the LCPR to prepare legislation for
passage during the 2018 session to make any statutory changes needed to implement your
recommendations.

If you have any questions regarding this request or need background information or assistance with
research on the issues and questions raised, please contact me or LCPR Executive Director Susan
Lenczewski.

Best regards,

Senator Julie A. Rosen

Enclosures: Information sheet, 3 issue briefs, and a journal article
Copy (without copies of articles and issue briefs (available upon request)):

Members of the Legislative Audit Commission:
Sen. Michelle Benson
Sen. Nick A. Frentz
Sen. Mary Kiffmeyer
Sen. Matt D. Klein
Sen. Warren Limmer
Sen. Ann H. Rest
Rep. Connie Bernardy
Rep. Sondra Erickson
Rep. Rick Hansen
Rep. Tina Liebling
Rep. Nels Pierson
Rep. Duane Quam

Members of the LCPR:
Sen. Gary H. Dahms
Sen. John R. Jasinski
Sen. Warren Limmer
Sen. Sandra L. Pappas
Sen. Dan Schoen
Sen. David H. Senjem
Rep. Tony Albright
Rep. Sarah Anderson
Rep. Mary Murphy
Rep. Tim O'Driscoll
Rep. Roz Peterson
Rep. Paul Thissen
Rep. Bob Vogel