Date of Award

Spring 2017

Document Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Peck, Sarah

Second Advisor

Nourzad, Farrokh

Third Advisor

Grossman, Nadelle


Purpose: The U.S. and many developed countries are currently facing a retirement savings crisis. The governance of institutional funds, such as public pension plans, is coming under greater scrutiny in light of systematic chronic underfunding, declining investment returns and shifts into higher risk asset classes. A disconnect exists between an organization’s process under the standards, and the outcome of this process, the overall effectiveness of the organization and, in particular, its investment performance and funding status. Methodology: In 2012, there were approximately 6,300 public retirement systems in the United States with over $3 trillion in assets. We collected financial, governance and legal data for the study period 2008-2012. Using the data reduction technique, Principal Components Analysis, we successfully constructed a Fiduciary Effectiveness Quotient Index (FEQ) and Legal Index, and applied these indexes to multivariate regression analyses to understand impacts on investment returns, funding ratios and bond yield spreads. Findings: The FEQ and legal variables demonstrated robust statistical relationships to pension plan performance measures. Top quintile FEQ organizations outperform bottom quintile FEQ organizations nearly 2 to 1 based on investment return performance. Higher FEQ organizations have 27% lower interest cost on related municipal bonds. The FEQ and the Legal Index together have a direct impact on the funding ratio of pension plans, which explain 89% of the variation in the funding ratio, an important measure of pension plan financial health. The FEQ, Legal Index and other factors were 93% accurate in distinguishing effective from ineffective plans, defined as plans having a funding ratio above or below 0.50. Conclusion: While this topic has increasingly gathered attention over the last 20 years, many studies have overly relied on survey responses to discern conclusions around best practices (Spence Johnson, State Street), a method without empirical basis. This study reveals that the structure, process and engagement of boards are critical to sustaining effective performance. Best practices are reviewed and recommended. Recommendations: Cross-country extension of this empirical approach into the examination of other asset owners including private pensions, foundations, endowments and trusts is recommended to assist trustees and policy makers.