The Governance of Public Pensions: An Institutional Framework

• Author: David S. T. Matkin,Gang Chen,Hina Khalid
• Published date: 01 January 2019
• Date: 01 January 2019
• DOI: http://doi.org/10.1177/0095399715621945
• Subject Matter: Articles

https://doi.org/10.1177/0095399715621945

Administration & Society

2019, Vol. 51(1) 91 –119

© The Author(s) 2016

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DOI: 10.1177/0095399715621945

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Article

The Governance of

Public Pensions: An

Institutional Framework

David S. T. Matkin1, Gang Chen1,

and Hina Khalid1

Abstract

Prior studies of public pensions emphasize the effect of the political economy

on the performance of pension systems. We argue that this approach

overlooks important institutional features of pension governance and fails

to account for endogenous, indirect, and lagged effects. In this article, we

describe those limitations and develop an institutional framework to explain

the complexity of public pension governance. We identify and discuss critical

environmental conditions, formal institutions, and the causal pathways

between institutions and pension performance. We also use a case study

of the Florida Retirement System to illustrate the explanatory power of the

institutional framework.

Keywords

public pensions, institutions, governance

Introduction

In recent years, the governance of public pension systems has become a major

policy issue, and a considerable amount of attention has focused on explaining

the financial performance of those systems (Chaney, Copley, & Stone, 2002;

Coggburn & Kearney, 2010; Dulebohn, 1995; Eaton & Nofsinger, 2004, 2008;

1University at Albany, NY, USA

Corresponding Author:

Gang Chen, University at Albany, 135 Western Ave., Milne 319, Albany, NY 12203, USA.

Email: gchen3@albany.edu

621945AASXXX10.1177/0095399715621945Administration & SocietyMatkin et al

research-article2016

92 Administration & Society 51(1)

Johnson, 1997; Kelley, 2014; Marks, Raman, & Wilson, 1988; Peng, 2004;

Schneider, 2005; Schneider & Damanpour, 2002; Sneed & Sneed, 1997;

St. Clair, 2013). To date, most of the research has attempted to understand the

governance of public pensions by studying the effect of the political econo-

mies of pension systems on their financial performance. Unfortunately, that

approach too often overlooks the importance of complex formal institutional

frameworks that are central to the performance of public pensions (i.e., orga-

nization structures, policies, rules, and procedures; March & Olsen, 1989;

Ostrom, 1999; Scott, 1995).

The tendency of the public pension literature to deemphasize the impor-

tance of institutions is not likely to surprise organizational researchers. In one

of the most comprehensive studies of government operations, James Q.

Wilson (1989) states, “Only two groups of people deny that organization

matters: economists and everybody else” (p. 23). Wilson observed that

researchers typically expect organizational outputs to reflect the interests of

their principals (such as elected officials, executive managers, and powerful

stakeholders) and place little importance on the role of the organizations

themselves. In the public pension literature, this perspective is demonstrated

by modeling the financial performance of public pensions as a function of

governments’ political preferences (e.g., political ideology, the partisan com-

position of elected offices, median-voter proxies, and the influence of special

interest groups) and the constraints and incentives on those preferences (e.g.,

fiscal concerns and professional management).

The organizational literature, in contrast, suggests that organizational out-

puts are greatly affected by institutions, especially when firms are exposed to

disruptive external environments. Thompson (1967) describes how organiza-

tions protect their “technical core” from disturbances in their external envi-

ronment by developing institutions to mediate between environmental

pressures and firms’ central purposes. Mintzberg (1979) finds that organiza-

tional “technostructures,” which include their financial management systems,

develop rules, procedures, and communication channels to promote organi-

zational stability and to facilitate core technologies. The institutional per-

spective does not, as such, reject the influence of organizational principals or

of the external environment but, rather, contends that institutional conditions

have substantive mediating and moderating effects.

The purpose of this article is to improve our understanding of public pen-

sions by developing an institutional framework of their governance. Previous

studies have provided minimal attention to the institutional characteristics of

public pensions. Some research has focused on the relationship between bud-

getary institutions and political preferences (Chaney et al., 2002; St. Clair,

2013; Thom, 2013). Other studies have narrowly focused on one or two