A version of this testimony was submitted to the Michigan Senate Finance Committee.
Thank you for the opportunity to offer our brief analysis of Senate Bill 1192 and the need to clarify the fiduciary standards of public trustees. Recent changes to the U.S. Department of Labor’s rules governing fiduciary standards emphasize the need for state leaders here in Michigan to keep the attention of public pension and public trust fiduciaries focused on the needs of retirees and taxpayers. From our perspective, Michigan Senate Bill 1192 is unique in meeting those needs as it draws from the best practices of state and local pension systems throughout the country, including Michigan, in two major ways.
First, SB 1192 sets objective investment standards and fiduciary guardrails without directing, limiting, or otherwise interfering with public pension trustees’ core mission of maximizing investment returns for active members, retirees, and taxpayers in order to deliver their constitutionally protected retirement benefits while also ensuring reasonable taxpayer costs.
Public trustees have a duty to weigh the risks associated with each investment opportunity, and SB 1192 supports that duty by reinforcing the pecuniary factors that a public fiduciary must use to guide its decision-making, elevating risk and performance to their rightful position as central factors in the investment decision process. Depoliticizing the investment management of these important public trust funds while also providing trustees the opportunity to take into account quantifiable risk is in the best interest of all direct stakeholders.
Second, SB 1192 recognizes the fact that public pension fund investing has changed dramatically over the last two decades, often taking on more risk in private and opaque markets in an effort to meet investment return expectations.
Standardizing and making public board meetings, proxy votes and limited partnerships activity increases transparency in a significant portion of the public trusts and leads to greater confidence in the system’s management by taxpayers and members. While Michigan’s pension boards appear to be generally operating with decent transparency, SB 1192’s reporting process would simply standardize an already common, but not universal, practice.
Pension benefits are paid from net investment returns, not aspirations. Senate Bill 1192 would help ensure the goals of public pension and trust fiduciaries align with reality and the means by which trustees achieve those goals are consistently monitored so that managers can be held accountable for the effectiveness of investments relative to the overall growth and resiliency of the state’s public pension and other Treasury-managed funds.