3. Essential Relationships: Building Trust and Creating Value

Apr 20

Adapted from “Transforming the Dialogue: Fiduciary Essentials” by Frederick (Rick) Funston. Amazon, 2025

“When you’re dying of thirst, it’s too late to start digging a well.”

— Japanese proverb

Essential Relationships

In the governance of public retirement systems, relationships aren’t just nice—they’re essential. Think of them as puzzle pieces: without the right relationships in place before a crisis, you might find yourself scrambling to put things together when it’s already too late.

Effective governance begins with a clear purpose: sustainably creating, delivering, and protecting value for all plan participants and beneficiaries. This purpose relies heavily on strong relationships and clear communication. Trustees are typically part-time volunteers who meet for a few hours each quarter and rely on professional staff and advisors. The staff are led by the chief executive (CE) who handles daily operations, and often a chief investment officer (CIO) who manages complex areas like investments.

Retirement systems today are facing rapid change. According to the National Association of State Retirement Administrators (NASRA), pension systems have experienced unprecedented changes since 2018, making clear communication and stakeholder relationships more critical than ever. More shifts are ahead.

Why Are Stakeholder Relationships So Important?

Imagine your organization as fabric—the stronger and tighter the weave, the more resilient it becomes. Relationships, like fabric, need constant care to avoid gaps that weaken overall effectiveness.

Who are your stakeholders? Simply put, they’re anyone impacted by or who can influence your retirement system. This includes members, beneficiaries, legislators, the public, media, business partners, potential employees, and taxpayers. Each group has unique interests, requiring tailored communication strategies.

Maintaining balanced relationships with these diverse stakeholders is vital. During crises—like economic downturns or major shifts such as the COVID-19 pandemic—effective communication can significantly influence public confidence and trust.

Engagement is Key

Public retirement systems frequently find themselves at the center of intense debates about their future. Transparent and proactive communication policies are crucial to inform and reassure stakeholders. Effective communication strategies typically emphasize accuracy, transparency, and timely information delivery. Essential components include leveraging social media, complying with the Freedom of Information Act (FOIA) and public meeting laws, and regular performance evaluations.

Who communicates? Usually, the CE serves as the primary spokesperson, sometimes supported by a Public Information Officer (PIO). Trustees should also communicate strategically and carefully, guided by clear policies on when and how they represent the system publicly.

Challenges and Communication Solutions

Public pension systems face multiple communication challenges, including:

Explaining complex benefit structures.
Educating new legislators about fiduciary responsibilities.
Managing benefit changes and public concerns around retirement security.
Navigating pressures to move away from traditional pension models.

A proactive communication plan can significantly enhance engagement. Such plans typically include social media, newsletters, stakeholder-specific messaging, and clear performance metrics. Regular evaluation through website analytics, surveys, focus groups, and benchmarking helps ensure your communications stay effective and relevant.

Essential Relationships Explained

There are three essential relationship categories:

External Relationships:

Members and Beneficiaries
Legislators and Overseers
Public Employers and Plan Sponsors
Taxpayers and the General Public

Each stakeholder has distinct interests and concerns, and neglecting any of them can quickly lead to problems. Common tensions include benefit reductions, funding concerns, political pressures, transparency issues, and perceived mismanagement.

Internal Relationships:

Think of your board like the representatives of a ship’s owners. They set direction and policy but aren't directly involved in operations. Instead, the CE (the "captain") manages daily activities and advises strategically.

This internal structure includes:

1st Line: Core retirement functions (e.g., investments, benefits).
2nd Line: Support roles (HR, legal, IT, risk, compliance) identifying and addressing operational exceptions.

Independent Relationships:

As Mark Twain wisely said, “It ain't what you don't know that gets you into trouble; it's what you know for sure that just ain't so.” Independent relationships help verify management assurances, reducing the risk of unpleasant surprises. These include:

This internal structure includes:

3rd Line (Internal Audit): Independently verifying management’s adherence to policies and effectiveness of controls.
4th Line (External Auditors and Advisors): Providing specialized expertise and second opinions, crucial for informed decision-making and continuous education.

Strengthening Your Relationships

Be a Fair Arbiter of Reliable Information Your role as fiduciaries includes ensuring stakeholders receive accurate, balanced, and timely information. Transparent and unbiased communication builds trust and empowers stakeholders to engage meaningfully.

Increase Transparency and Regular Communication Consistently share updates on board decisions, financial health, successes, and challenges through public reports, newsletters, town halls, and online portals.

Engage Stakeholders in Decision-making Formally involve stakeholders through advisory committees or public meetings to ensure their voices inform significant decisions.

Provide Educational Resources and Support Offer workshops, seminars, and online resources to help stakeholders understand complex issues like funding policies, investment strategies, and benefits structures.

Lessons Learned: Essential Relationships

Clear, proactive communication strategies help engage stakeholders, manage perceptions, and effectively navigate crises. Regular evaluations ensure ongoing effectiveness.
Strong relationships, clear communication, and purposeful engagement drive effective governance. Constant adaptation and stakeholder involvement are crucial to demonstrating prudence.
Continuous verification and relationship management empower the board to sustain the retirement system's long-term health.