Recommended practice a tutor for new pension board member; GFOA's recommended practice on funding retirement systems provides guidance to new--and continuing--trustees on how to critique and evaluate investment recommendations of staff and consultants.(Government Finance Officers Association, Public Employees' Retirement Association)

Media reports about the funding problems and management challenges facing both public and private pension systems have become increasingly common in recent years. The burden of solving these problems ultimately falls on retirement system trustees. As a recently elected member of the Board of Trustees of the Colorado Public Employees' Retirement Association (PERA), GFOA's recommended practices have been invaluable in helping me understand the actuarial principles and terminology necessary to ensure that the pension fund I help oversee can fully pay for member benefits over the long term.

For new trustees of public employee retirement systems, the terms and acronyms and the legal and financial consequences of decisions made in the boardroom can be intimidating and overwhelming. I was fortunate to have worked as Colorado's Social Security administrator for more than 12 years before being elected as a trustee for PERA. Thus, I came into the trusteeship role with background and experience in state and local governments' Social Security and Medicare coverage and benefits requirements, mandatory Medicare (effective April 1, 1986), and public pension system obligations under the mandatory Social Security provisions that became effective July 2, 1991. Even so, the first meeting 1 attended after being elected to the board was the two-day annual planning meeting in July, where topics like "investment strategies" and "actuarial experience study" were discussed. I felt like I had walked into a United Nations Security Council meeting without the benefit of a translator.

Fortunately, I was familiar with the recommended practices available on the GFOA Web site and was able to avail myself of that information. The most meaningful and consistently useful recommended practice has been "Funding of Public Employee Retirement Systems." This document addresses one of the most important principles of a public pension plan: the fundamental financial objective of a state or local government employee retirement system is to "establish a funding policy, and receive contributions which, expressed as a percentage of active member payroll, will remain approximately level from generation-to-generation based on the plan's existing benefit package while fulfilling the long-term goal of fully funding member benefits."

The recommended practice provides guidance to new--and continuing-trustees on how to critique and evaluate investment recommendations that are brought before the board by PERA staff and consultants. Together with current investment and funding information available on PERA's Board of Trustees' Web site, the recommended practice on funding provides the knowledge and terminology necessary to both ask pertinent questions and independently evaluate funding policy advice provided by PERA staff and consultants. Below is a summary of the guidance contained in the recommended practice and how PERA has applied those principles.

* Have an actuarial valuation prepared at least biennially by a qualified actuary in accordance with the principles and procedures established by the Actuarial Standards Board. PERA has an actuarial consultant who annually updates the fund's actuarial ...