Pension Reform

Liability Trap? Harvard Paper on ALEC Model Policy Gets Debunked

In February, the Harvard Law School Forum on Corporate Governance published a paper titled “The Liability Trap,” claiming that ALEC model policy would create a “legal quagmire” for fiduciaries connected with public pensions.

One would hope that such a bold claim would be backed up by strong evidence. Unfortunately, the folks in the ivory tower got it wrong. The authors conflated two different policy proposals: The ALEC Model Policy “State Government Employee Retirement Protection Act” and the proposed “Energy Discrimination Elimination Act” (which was not adopted as ALEC model policy), leading to a fundamental misunderstanding of ALEC model policy and the basic ideas underlying fiduciary duty.

Fortunately, Steven Gassenberger and Rod Crane of the Reason Foundation’s Pension Integrity Project set the record straight. Their commentary thoroughly examined the key assumptions in the paper and pointed out the flaws in the analysis.

I encourage you to read the entire commentary, but this quote from Mr. Gassenberger and Mr. Crane succinctly describes what was wrong with “The Liability Trap”:

The ALEC model, “State Government Employee Retirement Protection Act,” ESG fiduciary policy understands the unique and inherent gravity of public pension funds and aligns public policy to ensure decisions are objective and pecuniary as required by the fiduciary “sole interest” standards. However, the authors claim that clarifying public fiduciary policy like this will make it more difficult to make important investment decisions. In “The Liability Trap,” the authors jump from one scenario to another, emphasizing contradictions where there are none and offering hypotheticals to test the logic of the pecuniary standard, but ultimately offer little in the way of evidence for their hindrance claim.” (Emphasis added).

Hopefully, the authors of “The Liability Trap” will issue a correction considering Mr. Gassenberger and Mr. Crane’s thoughtful analysis.

You can learn more about ALEC and fiduciary rules in our Essential Policy Solutions for 2023. You can also visit the ALEC website to learn more about sound pension reform, including our publications such as our 2016 report, Keeping the Promise: Getting Politics Out of Pensions, and our annual report on unfunded pension liabilities, Unaccountable and Unaffordable.


In Depth: Pension Reform

Modern, 401(k)-style plans are now commonplace in the private sector. For state workers, however, traditional pensions are still the norm. As former Utah State Senator Dan Liljenquist wrote in Keeping the Promise: State Solutions for Government Pension Reform, this is not a partisan issue, but a math problem. State Budget…

+ Pension Reform In Depth