Managing Pension Plans: A Comprehensive Guide to Improving Plan Performance

Abstract

Managing Pension Plans: A Comprehensive Guide to Improving Performance, by Dennis E. Logue and Jack Rader, 1998, Boston: Harvard Business School Press. Reviewers: William P. Jennings and Penelope R. Jennings, California State UniversityNorthridge The authors of Managing Pension Plans: A Comprehensive Guide to Improving Performance identify two objectives for the book: to show the importance of managing pension plans within the context of the special relationship between the pension plan and the sponsoring organization and to show that the complexities and interrelationships of pension fund decisions must be considered in their entirety and not as mere isolated elements. Unlike most academic journals or books in the popular press that focus on individual pension plan issues such as the tax advantages of pension plans, fiduciary duties of sponsoring organizations, or the proper role of diversification, this book provides a comprehensive discussion of the specific issues surrounding pension plans within the context of the stated objectives. An example of how this approach alters the usual discussion can be seen in the first chapter, Why Have Pension Plans at All? From the basic descriptions of kinds of plan sponsors and types of plans, such as defined benefit and defined contribution plans, the chapter quickly moves to address pensions as tax-advantaged, motivating contracts between employers and employees. Viewed in this manner, the pension plan is both a part of employee compensation and a tool to help solve problems in attracting or keeping desirable workers. The discussion moves logically to the next chapter, in which the authors analyze the decision of Choosing the Best Pension Plan and examine the influences of public policy and the interrelated, but potentially conflicting, needs of employers and their employees. These early chapters clearly demonstrate that there are no easy solutions to or simple rules of thumb for the many issues that pension plan administrators and sponsoring organizations face. The authors also recognize that as theories of investing develop, what a prudent investor is or what state of the art is will change. The process of change requires sponsoring organizations and plan managers to continuously analyze their legal and ethical responsibilities. Furthermore, unlike many other works that give short shrift to the public sector, the book offers a serious review of the unique positions and problems of public pension plans. For example, the discussion of shareholder activism in Chapter 13 shows that large public pension funds such as CALPERS may engage in more activism than private pension plans, in large part because of less fear of financial or business retaliation. Chapters 4, 5, and 6 examine pension investment considerations related to establishing an investment policy, making asset allocation decisions, and allocating assets in a strategic manner. …

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