Congratulations, you’re a fiduciary! Now what?
“Where you stand depends on where you sit.”
Who is a fiduciary?
In a public retirement system, a fiduciary is any person who exercises discretionary authority or control over the management of the retirement system or its assets, provides investment advice for compensation, or has discretionary responsibility in administering the plan. Fiduciaries typically include:
One's perspective and priorities are often shaped by their position, role, or personal circumstances.
As a fiduciary responsible for deciding solely in the best interests of all plan participants and beneficiaries, this means you must consciously recognize and set aside your personal biases, allegiances, and external influences shaped by your particular role or background. Fiduciaries come from different stakeholder groups, each with unique concerns and priorities, but once seated as trustees, they must shift their viewpoint. Rather than advocating narrowly from their original perspective, fiduciaries must adopt an impartial, collective view, considering the long-term needs and overall welfare of all participants and beneficiaries equally.
Ultimately, Mandela’s wisdom serves as a reminder to fiduciaries to critically evaluate their decisions, striving to understand diverse perspectives and ensuring their actions reflect the broader, collective interests rather than their individual positions. Remember you sit as afiduciary not a stakeholder representative.
Public retirement plans provide long-term financial security for plan participants and beneficiaries. As a fiduciary, you’re a vital part of making that happen. Your role is to help assure the plan creates, delivers, and protects expected value —despite uncertainty and inevitable challenges.
These challenges include:
Understanding potentially competing stakeholder interests.
Tackling funding soundness.
Navigating legal and financial complexities.
Dealing with political and geopolitical influences.
Adapting to demographic and workforce changes
Setting and overseeing the management of complex investments in global markets.
Balancing those interests in the best interest of all plan participants and their beneficiaries - current and future.
How do you do that?
Let’s start with the composition of the fiduciary board.
Fiduciary Board Composition
“You get who you get”
Depending on your plan’s specific legislation, public retirement plan trustees are elected by plan participants (active and retired); appointed by the jurisdiction, and ex officio. An ex officio is a role or position someone holds automatically by virtue of holding another office or position. In public retirement system boards, ex officio members often include state or local government officials (e.g., Treasurer, Comptroller, or Governor/Mayor/County Executive), who serve on the pension board automatically due to their official capacity rather than an appointment or election specifically to that board.
Unlike many other types of boards, a public retirement board doesn’t get to choose its members; the stakeholders do. Turnover is inevitable, and dynamics can change quickly, for better or for worse. Boards get who they get, and they have to find a way to work together quickly.
So, stakeholders ought to carefully consider the characteristics of effective trustees when they elect or appoint them. Likewise, becoming a public retirement fiduciary is a very significant responsibility. Are you ready? What can you do to prepare? What should stakeholders look for in a trustee? Trustees should ask themselves, “Where can I improve?”
Table 1. What to look for in a trustee?
Of course, trustees need to be knowledgeable about the system; there is no forgiveness period. As soon as you become a fiduciary, you become responsible. You need to know everything immediately, even though that’s not practical. This is one of the reasons why new trustees can feel so overloaded.
What must you know and when do you need to know it? First, you must understand your duties as a fiduciary.
Three Essential Fiduciary Duties
Figure 1. Fiduciary Duties
As a public retirement system fiduciary, you’re held to the highest legal standards— even higher than corporate directors! Why? Because the potential for conflicts (group and/or personal) is real, and your overall fiduciary responsibility is protecting the best interests of all the plan’s participants and beneficiaries.
The assets being managed by trustees belong to the trust, not third-party stakeholders. The job of the fiduciary is to impartially balance competing group interests while avoiding personal conflicts of interest. It all comes down to three essential duties that must guide your decisions
and actions.
Loyalty to the best interests of all plan participants and beneficiaries.
Acting with prudence
Complying with laws and plan documents
1. Loyalty to the Best Interests of All Plan Participants and Beneficiaries.
Your primary duty as a fiduciary is to make decisions that prioritize the financial security of all plan participants and beneficiaries. This means setting aside personal preferences —whether it involves a favorite cause, your appointing authority, constituents or taxpayers. Taking into account all those potentially competing interests, what decision is in the best interests of all plan participants and beneficiaries? That’s not an easy decision.
What’s Best? Says Who? Like driving a vehicle, there is the maximum and the optimum option. At maximum speed, without regard to the conditions, you may get there faster. There are no tradeoffs, but you may not get there at all. In the maximum scenario, there are winners band losers, and there are greater risks.
In the optimum scenario, you are balancing the conditions with speed and making tradeoffs to arrive safely and timely. There are no winners and losers --- only what’s best under current and foreseeable conditions. Unfortunately, there’s a lot that’s not foreseeable. We will discuss this more in a moment under Prudence.
The plan’s assets are held in trust for the plan participants regardless of who administers them. The legislation that created your plan puts the key stakeholders in the same room and authorizes you (in light of these challenges) to collectively determine in good faith what is in the best interests of all plan participants and beneficiaries within your mandate.
A stakeholder is anyone who is affected by or who can affect the organization’s mission. A public retirement plan’s key stakeholders include all plan participants and beneficiaries, legislators and overseers, public employers and plan sponsors, taxpayers, and the general public. The general public benefits from public service and is the source of future plan participants and beneficiaries. Executive management and others are fiduciary agents of the board.
There will inevitably be conflicting interests within and between public retirement systems’ stakeholder groups.
Understanding the challenges and then agreeing on how to work together to collectively resolve them are among the board’s first steps toward addressing them. In public retirement plans, stakeholder groups often have conflicting interests and competing priorities. For example:
● Retirees may prioritize higher cost-of-living adjustments (COLAs) to protect their purchasing power.
● Current employees might focus on maintaining or increasing future retirement benefits to secure their financial futures. Or may not even appreciate the value of the current plan.
● Employers or taxpayers may advocate for minimizing contribution rates to reduce budgetary strain.
It is the responsibility of the board to, impartially and in good faith, attempt to resolve these group conflicts. This is one of the main reasons why the board exists --- to collectively resolve group differences as they arise and make difficult decisions solely in the best interests of all plan participants and beneficiaries. When in doubt, consult your legal counsel.
For Taft-Hartley Plans, the key stakeholders are the plan participants and employers. The public is not represented as a stakeholder on the board. However, the duty is the same--- to decide solely in the best interests of all the plan’s participants and beneficiaries.
There are two major potential sources of conflict:
Group conflicting interests
Personal conflicts of interest
Group Conflicting Interests
A group of conflicting interests is often about competing priorities within or between stakeholder groups.
Group conflicting interests need to be resolved collectively. Personal conflicts of interest need to be avoided. At least some of the issues that will come to the board are bound to be tricky—highly contentious, complex, and with outcomes that are anything but certain. These conflicting interests and priorities can create tension. The retirement system’s resources are finite and require careful balancing of immediate needs with long-term sustainability. Conflicting stakeholder group interests must be thoroughly understood to be resolved. This is a key role of the board.
For example, fiduciaries need to balance the different time horizons and risk tolerance levels of younger and older participants, who may have divergent interests regarding benefit increases, risk exposures, long-term value creation, and the viability of trust funding.
Doing the right thing can be a tough and often thankless job.
To succeed in this ever-changing environment, you need to have open, meaningful dialogue with fellow fiduciaries and key stakeholders. These dialogues are essential for tackling evolving issues and priorities, resolving potential conflicting group interests, and helping to assure the system stays on track to meet its critical mission. Doing what’s right may not get you reelected or reappointed. That’s why it can sometimes be a tough and thankless task. But you should know that going in.
As fiduciaries, you must speak up and engage in the dialogue. You don’t need to know all the answers right away, but you do need a systematic process to make better informed decisions faster. You need to know what questions to ask. It is a distinguishing characteristic of experts.
Figure 2. Resolving group conflicting interests
Considering all those views, as fiduciaries, you must then collectively. Impartially, and, in good faith, decide what is in the best interests of all participants and benefitiaries — current and future
What are the best ways to understand stakeholders’ concerns and resolve potential conflicting group interests?
How can you transform the dialogue? Can you agree on a systematic and prudent way to collectively discuss the tough issues? Can you agree to adopt a disciplined approach to conflict resolution? Can you accelerate consensus building?
Whether you are elected by active or retired members, appointed by the jurisdiction or ex officio, an important part of your job is to make sure all key stakeholders are consulted, their points of view are heard, and the range of options and the pros and cons from their perspectives are discussed and understood. Then you must decide “what’s best” for all plan participants and beneficiaries.
Consensus is a decision-making process in which all members of a group actively participate to reach a decision that everyone can accept or support. It doesn’t necessarily mean that everyone fully agrees with every aspect of the decision, but that they can live with it and will support its implementation. The aim should be consensus because repeated split votes lead to divisiveness.
Consensus is not majority rule. Transforming the dialogue starts with recognizing potential conflicts and agreeing on a process to determine how best to resolve them.
Personal Conflicts of Interest
“Trust, like reputation, is gained in inches per year and lost in feet per second.”
A conflict of interest arises when personal interests compromise professional duties. These require disclosure, avoidance, and/or quick corrective action to uphold integrity and trust. This is the individual’s responsibility.
Co-fiduciaries must not be willfully blind to other fiduciaries’ misconduct.
Investor fiduciary relationships inherently bring potential conflicts of interest, as pension fiduciaries are entrusted with managing participants’ life savings. This control creates opportunities for misuse or mismanagement of funds. The complexity of pension investments and delays in detecting harm from fiduciary misconduct further hinder participants’ ability to identify and address issues promptly.
To mitigate these risks, pension fund trustees are held to the highest legal standards to ensure loyalty, prudence, and diligence in protecting participants' interests. There are also common law fiduciary duties to diversify, delegate, control costs, be impartial, and act in good faith.
Individual conflicts of interest happen when personal interests get in the way of fulfilling fiduciary responsibilities, thus creating a risk that decisions or actions may be influenced by these competing interests. For example,
Financial Interests
Personal Relationships
Dual Roles
Gifts and Favors
Outside Employment or Activities
Decision-Making Bias
No blind eye. Managing personal conflicts of interest is a personal responsibility, but fiduciaries cannot turn a blind eye to the misconduct of co-fiduciaries. Personal conflicts of interest can severely undermine integrity and trust and take years to redress. Addressing them head-on is crucial. To manage personal conflicts effectively, individuals need to disclose them, avoid compromising situations, and take quick corrective action when necessary. Together, everyone plays a role in maintaining trust and accountability.
Conclusion
As a fiduciary of a public retirement system, your role is both challenging and profoundly impactful. Balancing competing stakeholder interests, managing inevitable board dynamics, and upholding rigorous fiduciary duties require unwavering commitment, ongoing learning, and clear, disciplined decision-making processes. Though the responsibility may sometimes feel thankless, remember that your efforts directly influence the financial security and well-being of countless individuals. Embrace continuous improvement, foster open dialogue, actively manage conflicts of interest, and always strive for consensus and transparency. Ultimately, fulfilling your fiduciary duties with integrity and prudence ensures the sustainability and effectiveness of your public retirement system—benefiting current and future generations alike.
This article was adapted from “Transforming the Dialogue: Fiduciary Essentials” by Frederick (Rick) Funston. Amazon 2025.
To learn more, contact slussow@boardsmart.com or visit www.boardsmart.com