U.S. state and local pension funds manage over $4 trillion in retirement assets for 20 million active and retired plan members.1  Given the significance of these funds, proper oversight is vitally important to government officials, plan participants, and taxpayers alike.  The challenges to effective pension fund governance have been well documented, and significant research has demonstrated that the characteristics of pension boards matter.2  This brief summarizes public pension fund governance, discusses key aspects of public pension boards, and presents additional evidence that a well-designed board relates to better plan outcomes.

The brief proceeds as follows.  The first section provides background on the primary responsibilities and authority entrusted to public pension boards.  The second section discusses key factors that influence board effectiveness – structure, composition, size, and member tenure.  The third section builds a “Board Effectiveness Index” by scoring plans across these factors, and demonstrates a positive relationship between the Index and plan 10-year investment returns.  The final section concludes that public pension funds may be best served by taking a holistic view of the many aspects of a board that contribute to its effectiveness, rather than focusing on any single feature.

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Please be sure your retired members are aware that they may reduce their taxable earnings by up to $3,000 for medical insurance premiums paid during a calendar year. This is allowable under the Healthcare Enhancement for Local Public Safety Retirees Act, or the “HELPS” Retiree Act.

To qualify, the premium must be deducted from the retiree’s pension check and remitted directly to the healthcare provider or insurance company.

Note that the $3,000 reduction does not appear on the annual 1099R form that is sent out by the pension fund. The retiree must claim the reduction on his or her personal 1040 tax form on Line 4B.

Instructions on claiming the reduction are included in IRS Publication 575 (page 6), which is available by clicking on the link (IRS Publication 575 (Page 6), Information on HELPS Act) below. As this is not a simple matter, it is recommended that pensioners consult with their tax preparer to properly claim the reduction. If your pension benefits are administered by a pension administration company, you may obtain additional information by contacting that company.

Let’s do what we can to ensure that our retired members can take advantage of this tax break for retiree medical insurance.

IRS Publication 575 (Page 6), Information on HELPS Act

Gov. J.B. Pritzker said Tuesday that a constitutional amendment voters will decide next year will help save the state’s finances. He also dismissed any proposal to reduce the state’s pension costs through a constitutional amendment to remove the state’s pension protection clause.

During a wide-ranging fireside chat at the Economic Club of Chicago Tuesday, Pritzker promoted his constitutional amendment for a progressive income tax. Voters next year will be asked the binding question that Pritzker ushered through the legislature. Pritzker also campaigned on the issue of changing the state’s existing flat income tax to a progressive system that has higher rates for higher earners.

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