The Fifth Annual Evolving Fiduciary Obligations of Pension Plans Seminar: A Recap

April 1, 2014

On February 18th, Delegates from Across the United States and Canada Gathered in Washington, D.C. to Examine and Debate Current Issues Affecting Institutional Investors.

The Honorable Barney Frank, former United States Congressman from Massachusetts, drew applause as he discussed his well-documented work in Congress, as well as insight into the crafting of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. His appearance was the climax of the Evolving Fiduciary Obligations of Pension Plans Seminar, the theme of which was, “Honing Active Engagement Through Strategic Action.” 

The seminar was hosted by Kessler Topaz Meltzer & Check, LLP and Institutional Investor.

For the fifth consecutive year, top-level executives, legal counsel, compliance and corporate governance officers, from public pension funds and Taft-Hartley funds, as well as other legal and financial service providers from across the United States and Canada, participated in a lively discussion of current shareholder issues. With attendees representing funds of all sizes, from small municipal plans to the likes of CalSTRS and the North Carolina Department of the State Treasury, there was engaging dialogue concerning the pressing issues facing public pension funds and institutional investors generally, as well as on the ever-increasing role that institutional investors are playing with regard to corporate engagement. Some highlights of the EFOPP Seminar were as follows:

The day began by looking at the recent municipal bankruptcies in Stockton and Detroit. Panelists representing U.S. pension funds of varying size, including Chelsa Wagner, Controller for Allegheny County in Western Pennsylvania, Victoria Hale, General Counsel for the Denver Employees Retirement Plan, Linsey Schoemehl, General Counsel and Chief Compliance Officer for the Illinois State Board of Investment, along with Leigh Snell, the Direct of Federal Relations for the National Council of Teacher Retirement, tackled several collateral issues that have surfaced such as the impact these bankruptcies had (and will continue to have) on the public pension industry as a whole, plan modifications to prevent future underfunding issues, as well as the difficult task of dealing with outside political influences. It was interesting to see how the panelists, in working for their respective plans, are dealing with these significant and complex issues.

Another panel session followed, this one addressing how institutional investors approach active engagement and Socially Responsible Investment (SRI). Again, representatives from public pension funds of all sizes, including Jay Chaudhuri, General Counsel & Senior Policy Advisor for the North Carolina Department of State Treasury, Jeffrey Padwa, City Solicitor for the Providence Board of Investment Commissioners, and Elaine Reagan, General Counsel for the San Diego City Employees’ Retirement System, helped illustrate how size and human/financial resource constraints dictate just how prominent a role active engagement and SRI matters will play for a particular fund. Panelists discussed how their respective funds handle issues such as proxy voting, securities litigation, amicus briefs, sign on letters and responsible investing. While U.S. institutional investors still lag behind many of their international colleagues on these matters, it is clear that U.S. funds of all sizes are working to close the gap.

The EFOPP Seminar then broke into two sets of concurrent workshops, where delegates had the opportunity to choose between sessions addressing: 1) resources and active engagement — how to do more with less; 2) what drives plan investment decision-making; 3) how governance standards can be used to address the long term viability of plan investments; and 4) the effect of the economic crisis on public pension plans. The workshop segments have continued to be crowd-pleasers at EFOPP seminars, as delegates are able to engage in a free-flow of ideas with their colleagues, learn what is and what is not working, and often take an idea or two away which they can bring back home and implement at their respective fund. 

After lunch, R. Paul Edmonds, Senior Vice President, Corporate Affairs and General Counsel for the Ontario Pension Board, gave a presentation on how his fund, along with several others in Canada, has begun the process of introducing risk-sharing into their pension funds. In addition to their dedication to complete transparency of operations, the Board has demonstrated (amid intense public scrutiny despite strong funding levels) a commitment to increase participants’ shared-risk responsibilities. As Mr. Edmonds explained, his fund is in the process of reorienting its liability structure to hopefully benefit both the system and its participants. It will be interesting to see if such a structural change could ever take hold in the United States with regard to defined benefit plans.

Kessler Topaz partner Andrew Zivitz next led the EFOPP delegates through a case study relating to the proprietary trading activities of JPMorgan Chase & Co’s Chief Investment Office — activities which ultimately led to over $6 billion in losses to the Company as a result of massive bets placed on exotic credit derivatives by the so-called “London Whale” — a trader in the Chief Investment Office. Mr. Zivitz, with the assistance of engaging video accompaniment, explored how the losses occurred, the fallout to JPMorgan, and provided an update of the securities class action now pending in the United States District Court for the Southern District of New York. 

Fiduciary duty has historically been a major theme at EFOPP seminars. This year, Ed Waitzer, a partner at Stikeman Elliott LLP, gave a case study on the expanding scope of fiduciary duty and the evolution of fiduciary standards relating to the financial sector. Mr. Waitzer focused on how the sector itself, and those who rely on the efficient mobilization and allocation of capital, including courts and regulators, will continue to shape the reform process. Mr. Waitzer also provided some insight on what active investors can expect going forward. 

In “Are the Courtroom Doors Closing to U.S. Investors? Erosions in Shareholders Rights and What Investors Can Do to Reverse the Trend,” moderator and Kessler Topaz partner Matthew Mustokoff asked a series of pointed questions to panelists Catherine LaMarr, General Counsel for the State of Connecticut Office of the Treasurer, Michael Garland, Assistant Comptroller, ESG, for the New York City Office of the Comptroller, and Jonathan Massey, a partner at Massey & Gail LLP. This session spanned several timely topics, addressing how the United States Supreme Court, the U.S. Chamber of Commerce, and corporate America have continued attempts to limit the scope and venue of litigation, eliminate litigation as a viable tool of engagement with corporations, and preventing proxy access and voting. Mr. Garland addressed recent forum selection by-law and forced arbitration clause issues facing investors, as well as other corporate governance matters the ever-active NYCERS has been watching and engaged with of late. Ms. LaMarr spoke to the continuing issues the United States Supreme Court’s 2010 decision in Morrison v. National Australia Bank has had on her efforts to recover investment losses sustained by her fund in securities purchased on non-U.S. exchanges. Finally, Mr. Massey gave a thorough explanation of closely-watched Erica P. John Fund, Inc. v. Halliburton Co., which is pending before the United States Supreme Court, outlining the extensive briefing on both sides, the questions before the Court, and also providing guidance on what to expect during Oral Argument on March 5, 2014. 

In recent months, as David Sirota argued in “The Plot Against Pensions,” much publicity and debate has centered around the “public pension crisis” and whether — if there is such a crisis — it has been negatively mischaracterized by corporate stakeholders seeking financial gain through subsidies and tax breaks from slashed retiree benefits. Dean Baker, Co-Director at the Center for Economic and Policy Research, led the EFOPP delegates in a review of the claims in Sirota’s report — focusing on the debate surrounding pension shortfalls, examining whether perceptions on this issue really are being misconstrued, and discussing the pros and cons of the possible solutions to pension shortfalls — namely reducing retiree benefits versus raising public revenue. 

Kessler Topaz partner Stuart Berman moderated the final panel of the day in which Michael Herrera, Senior Staff Counsel for the Los Angeles County Employees Retirement Association and Adam Franklin, General Counsel for the Colorado Public Employees Retirement Association, educated EFOPP delegates on the continuing effects of the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank, and how U.S. investors are adjusting to the growth of non-U.S. securities litigation. Herrera and Franklin provided an overview of how their respective funds are working to fulfill their fiduciary duties in crafting best practices to identify, evaluate, and make a determination on how best to proceed in securities action abroad. The challenges that non-U.S. securities litigation present for U.S. investors have been well documented over the past few years post-Morrison. But given the significant allocations of U.S. funds to non-U.S. equities, and what appears to be the continuing trend in the growth of shareholder litigation outside the U.S., the panelists made it clear to the audience that U.S. funds must have a plan to address these cases to help ensure their investments are protected.

The day’s discussion segued nicely into Barney Frank’s remarks. Mr. Frank offered his insights on several pertinent topics to shareholders, including financial regulation, corporate governance and class action litigation. Mr. Frank also spoke about his remarkable 22-year career as a member of the United States House of Representatives and the changes (and challenges) he observed over the years — led in part by the 24-hour news cycle — with regard to the willingness of members of Congress to work with each other for the good of the country. Finally, he discussed his role as a leading co-sponsor of the 2010 Dodd-Frank Act — a sweeping reform of the U.S. financial industry in the wake of the financial crisis. Mr. Frank then engaged the delegates in a lengthy, and lively, Q&A session. It was clear that the audience was deeply engaged with Mr. Frank and appreciated hearing his views on many important issues.

The response to the EFOPP Seminar was again overwhelmingly positive and we are already planning and looking forward to next year. We will be moving locations — escaping to the warm confines of Tempe, Arizona. We are also working to secure another excellent keynote speaker whom we will announce in the coming months. We look forward to hosting you on February 10, 2015. 

Related People
D 484.270.1419