GAO Warns Public Plans on Risk-Taking Hazards

September 20, 2010 ( – A new report by the Government Accountability Office (GAO) cautions that many state and local pension plans could expose their members and beneficiaries to new risks by broadening their portfolios to include more alternative investments.

While not offering any recommendations about the issue, the GAO said the embracing of alternatives as part of a move to beef up returns could come at a bad time if the markets deteriorate again and produce losses when many state and local government finance pictures are already weak.

The report examining public plan governance, prepared at the request of U.S. Senator Charles Grassley (R-Iowa), ranking member of the Senate Finance Committee, also summarizes efforts by some public plans to borrow to raise pension and benefit contributions and others to pursue measures such as consolidating the governance of several systems into one to generate cost savings and attract higher quality money managers.

Still other public plans are attempting to restructure their benefit payments to achieve cost savings.

In general, GAO researchers applauded efforts by many government plans to increase transparency by posting their investment policies and other governance information online.

“Plans’ actions to provide greater access to investment policies and investment allocations—such as posting them online—may help employers, beneficiaries, and taxpayers gain a better understanding of such matters,” the GAO contended.

The GAO continued: “State and local pension plans are designed to be long-term concerns and, while they appear to have the assets needed to pay current benefits, their long-term prospects bear continued monitoring and vigilance—which increased transparency and disclosure facilitate. It remains to be seen what impact increased exposure to investment risk, and practices such as plan consolidation and the use of pension obligation bonds, will have on plan health, but efforts to offer increased disclosure may be important to helping all plan stakeholders understand the considerable challenges they face.”

The report is at