The Role and Responsibilities of the Board of Trustees
of the
Georgia Firefighters' Pension Fund
By Jim Meynard
Executive Director
Since joining the Pension Fund, an number of issues have surfaced that have brought to light questions and concerns for just what role the Board plays in the running of the Pension Fund, and what are the responsibilities of the Trustees relative to the Fund, the assets and the members. With the help of our Board Counsel, David Will, I have put together the following comments in an effort to help all of us understand the BoardÕs role and responsibilities, and, taken with previous articles on use of actuarial statistics and investment policy, perhaps clarify the deliberation and decision process that guides their activities.
As codified in O.C.G.A. 47-7, Article 2, the Board of Trustees consists of five members, two active members and one retired member of the fund appointed by the Governor, the Governor or his designated representative, and the Insurance Commissioner or his designated representative, usually the State Fire Marshall. The Trustees typically meet once a month to conduct Fund business, every month except December. They are reimbursed for out of pocket expenses but not otherwise compensated for their time or effort.
In general, the statute empowers the Board with the governance of the Fund and the management of its assets, and to provide for the administration of the Fund. Explicitly, the statute requires the Board to provide the tools and infrastructure to assemble and maintain membership records, handle benefit payments, pay bills and invoices, collect dues and taxes; to establish rules and regulations to govern membership, to invest funds and to employ agents and contractors as required to fulfill the mission of the Fund. Implicitly, the Board bears the responsibility for the consistent and uniform application of the statutes and regulations and the prudent care and management of the assets. In this regard, members of the Board of Trustees have a duty to the membership to become informed and educated with respect to the nuances of the law governing the Fund and the technicalities of asset management.
Board Members are both stewards to the participants and fiduciaries to the Fund.
As an aside, a fiduciary, as you may know, is any one person or agency that exercises discretionary authority or control over the assets of the Fund or provides professional advice for compensation. This Fund has several fiduciaries: the Investment Managers, the Investment Consultant, the Custody Bank and the members of the Board of Trustees. Fiduciary duty, relative to the assets, requires that fiduciaries place the interests of the participants ahead of their own, that they be impartial in their decisions, that they remain vigilant in their oversight and take action when warranted, and that the assets be fully diversified in the interests of the participants. Persons or agents closely associated with the management of the assets of the Fund are subject to both federal and state laws regarding fiduciary duty.
The Board of Trustees exercises oversight with respect to the management of the staff through the use of the typical administrative management tools, i.e. management reports, personnel performance reports, accounting reports, etc. There is a Personnel Policy Manual in place. An annual budget is prepared to gauge and control administrative expenses. Budget reports are scrutinized each month for variances. Personnel performance evaluations are reviewed semi-annually. The Board has engaged the Executive Director for direct day-to-day management of these functions and monitors his/her actions accordingly. The Executive Director is authorized to engage in routine, recurring contracts for office services and to make payments for all routine and recurring expenses on behalf of the Fund. The Board, as represented by the Chair, approves all hiring and termination decisions, non-routine, non-recurring contracts and compensation arrangements. Herein, Board Members have a duty to the membership to act as good stewards of the Fund in expense control and a responsibility to exercise good business acumen in overseeing the administration of the operation.
While the staff handles day-to-day administration of membership records, answers queries, and assists members, it is the Board of Trustees that has the final say on whether an applicant is allowed to join the Fund, is suspended, reinstated, allowed to retire, and so forth. As a basic rule, the staff fully researches and prepares member records for Board review and approval during the business session of the monthly Board meeting.. Routine applications are easily surveyed and do not require discussion, while special cases and appeals are more fully vetted and discussed by Board Members. All membership activity is ratified by majority vote of Board Members present. It is required of Board Members, and it is their duty and responsibility, to become intimately familiar with the rules and regulations governing membership in the Fund and subsequent retirement. Where a legal interpretation of the statute is required, the Board is assisted by legal counsel in the person of a Special Assistant to the Attorney General, in attendance at all Board meetings.
The statute empowers the Board with Òthe full power to invest and reinvestÓ the funds subject to O.C.G.A. 47-20-83 and 84, and to employ agents, advisors and counselors, et al for those purposes. Trustees are not investment professionals, but are charged with responsibility for the oversight of over $450 million in pension trust assets. It is then their duty and responsibility to become fundamentally knowledgeable of such matters to properly engage and direct, through the Executive Director, an investment consultant and professional investment managers to manage the assets of the Fund.
Within the confines of O.C.G.A. 47-20-83 & 84, the Board is guided by the Investment Policy Statement, (discussed in a previous article,) a document prepared in conjunction with the consultant to establish parameters for long-term decision making regarding fund investments. The Investment Policy Statement specifies actuarial criteria, investment philosophy, investment risk tolerance, asset allocation, asset manager selection and retention parameters, and investment performance criteria. The Board is responsible for carrying out the policies promulgated in the Investment Policy Statement through the Executive Director and the investment consultant. As fiduciaries and stewards to the Fund and its participants, it is the duty and responsibility of the Board Members to ensure that funds are invested in the best interests of the participants of the Fund and that the performance of the investment managers who are entrusted with discretionary authority over those assets also serve the best interests of the participants. While the Board may be presented with compelling information and recommendations by the investment consultant regarding investment decisions, all investment decisions are ultimately those of the Board, and responsibility for such decisions and the consequences and aftermath of such decisions rest solely with the Board of Trustees.
In order to facilitate meeting their duties and responsibilities to the Fund, Trustees must develop and maintain a minimum level of institutional investment knowledge and acumen. Trustees are encouraged to seek certification through the Florida Public Pension Trustees Association Trustee Certification Program. This conference-based school offers a three tiered program to provide a fundamental knowledge base for Trustees in the areas of fund governance and institutional investment management. In addition, Trustees are expected to remain abreast of current economic and capital market conditions through industry and institutional publications made available by the Fund. Select commercial conferences may be used where the Board is in agreement with respect to the value of the offering.
The Board is authorized to grant cost of living allowance increases in pension benefits of up to 1½ %, twice a year, predicated on favorable funding conditions established by actuarial analysis. This is the only authority the Board possesses to make benefit changes or improvements. The Board exercises this authority by engaging the services of a professional actuary. The actuary provides analyses and projections relative to participant growth rates, rates of retirement, mortality, pension payments and investment returns. The actuarial analysis includes a recommendation with respect to the long-term ÒaffordabilityÓ of an increase. The Board is not required to grant an increase under any circumstance, however, the Board may not grant an increase that overrides the recommendation of the actuary or impairs the financial viability of the Fund.
From time to time, the Board is called upon to opine on proposed legislative changes, rules changes and benefit improvements that may in some fashion impact the Fund and its participants. Board Members are themselves members and past members of the Fire Service. As such they possess broad knowledge of the service and conditions relative to management structures, compensation levels and benefit plans available to firefighters throughout the state. As individuals, with the perspective gained from their positions as Board Members, they can offer additional perspective to legislative proposals and benefit changes that will affect the Fund, its participants and the Fire Service as a whole. Implicitly, they have a duty to the Fund, its participants and to the Fire Service to address those issues and share their perspectives as they may relate to the Fund. Recognizing this special knowledge, the General Assembly or the Retirement Committee of the General Assembly may seek the opinion of the Board before moving forward on a legislative proposal. However, absent the General AssemblyÕs request, the Board Members, as participants in the Fund themselves, should not support, promote or introduce legislation to effect benefit changes. They are conflicted, and as fiduciaries precluded from such self improvement.
In addition, by virtue of their knowledge of the general population of the fire service, and that of the participants of the fund, coupled with the financial condition of the fund, the Board may recognize certain opportunities for benefit improvements. The Board may suggest such improvements to the Retirement Committee of the General Assembly or the Board of Directors of the Georgia State Firefighters Association (GSFA) for further consideration and action. The Board may instigate studies and analyses to determine the impact of benefit changes prior to offering suggestions to the General Assembly or to the GSFA. The Board may also receive suggestions or requests to evaluate benefit changes from external agencies. As it evaluates these suggestions and requests, the Board also must determine whether the Fund suffers the cost of the actuarial analyses and studies or to place these expenses back on those proposing the changes. External agencies contemplating proposals for changes in benefit structures or levels and thus seeking to determine the financial impact on the Fund may well be required to fund the analysis and study required to make that determination.
In the end, individuals who accept a position as a Trustee of this Fund, (or any fund, for that matter,) accept a responsibility for duty and stewardship that goes beyond attending a monthly meeting and an occasional conference. They must become knowledgeable and proactive in matters relating to the Fund. And, they must put the interests of the participants, all of the participants, and that of the Fund ahead of their personal and professional interests in matters relating to the Fund. They are, after all, sworn officers of the Georgia Firefighters' Pension Fund.