Managing Pension Plans: A Comprehensive Guide to Improving Plan Performance.

• Author: Greifer, Nick
• Position: Review

Logue, Dennis E., and Rader, Jack S. Boston, Massachusetts: Harvard Business School Press. (381 pp)

Reviewed by Nick Greifer, Senior Policy Analyst, GFOA Research Center.

Authors Dennis Logue and Jack Rader have set a very ambitious goal: to write a comprehensive text on pension plan management. Furthermore, the book is intended for nearly all the key decision makers who design private and public pensions. On the whole, the authors succeed in delivering a book that has both the breadth and depth to appeal to this wide audience.

The book addresses several fundamental topics in pension management:

* Why do pensions exist?

* What is the best benefit design (defined benefit, defined contribution or hybrids)?

* What are the general legal standards that shape pension plans?

* How should pension managers invest their assets?

* How should pension managers manage risk?

* How should pension systems oversee costs, including the costs of outside advisers?

The last three topics - investment, risk management, and cost control - represent the heart of the book. Chapter 5, "The Asset Allocation Decision," succinctly describes the major classes of assets a pension manager can invest in, and describes how they can be combined into a optimal asset mix. This sets the stage for an empirical review of pensions systems' experience, both good and bad, in making asset allocations.

On risk management, the authors provide a rigorous introduction to measuring and managing risk. Compared to the rest of the book, these topics are a challenging read, yet they may be the most rewarding for pension trustees and decision makers who do not have day-to-day responsibilities for pension plans. Simply put, these chapters will enable them to ask the right questions of appointed officials. Similarly, it will enable pension administrators to better monitor outside advisers' performance.

On plan design, the authors present an even-handed look at the pros and cons of defined benefit (DB) and defined contribution (DC) plans. The book provides an illuminating look at the economic advantages of each, such as the use of relatively portable DC plans to recruit new staff versus DB plans for rewarding longevity. They advance the discussion by providing a detailed look at hybrid plans, and include in the appendix a hybrid case study. Omitted from this discussion, however, are a) a closer look at the impact of job mobility and the related issue of employment insecurity, b) the risk that...