UK - A new academic study has presented evidence that company-appointed pension fund trustees act in the interests of the sponsoring company and not scheme members.
"We find evidence that supports the agency hypothesis, whereby insider-trustees act in the interest of shareholders of the sponsoring company, and not necessarily pension plan members," the paper states.
"More precisely we find that pension plans of more leveraged firms with a higher proportion of insider-trustees invest a higher proportion of the pension plan assets into equities, and this way make riskier investments."
This constituted evidence of risk-shifting by leveraged firms, claim authors Joao Cocco and Paolo Volpin of the London Business School.
Their 27-page ‘Corporate Governance of Defined Benefit Pension Plans: Evidence from the United Kingdom' was presented at an event organised by UBS at the London School of Economics today. It is based on data on 90 FTSE 350 firms, sourced from annual reports and ‘Pension Funds and their Advisers'.
The paper provides evidence that the presence of insider trustees also lets firms make lower pension contributions. It found no evidence that insiders facilitated more efficient tax management between the fund and the company.
Another finding was that firms that pay larger dividends and have a high proportion of insider-trustees also tended to make lower pension contributions.
The writers stated that the optimal number of insider-trustees "may not necessarily be zero" - as they can help information flow between the firm and the scheme.