I don’t worry about the health of my former employer’s pension plan. I figure that despite recent losses, the money will always be there because the company is a giant and the plan has always been fully funded. And I think the people at that company who have fiduciary responsibility sleep well at night, too.

But not every public or private pension plan is in such good shape, for reasons of plummeting investment returns, poor governance practices, or a combination of the two.

The value of pension fund equity holdings in the United States alone fell by $4 trillion over the past year, write Keith Johnson and Frank Jan de Graff and the Network for Sustainable Financial Markets in a report that calls for pension plan reform in these troubled times. “As pension fund assets and annuity payments decline, a chain reaction is triggered. Companies with defined benefit plans are forced to either make higher pension fund contributions, underfund, or terminate their plans. … Pension savings levels, consumer confidence, and buying power are likely to be affected. The knock-on economic effects for companies and the macro economy could be extensive.”

The underlying problem for pension funds, according to the report, is that funds tend to herd around similar investment practices that have become focused on the short term. The authors also recommend that fiduciaries “adopt pension fund governance practices associated with improved investment performance, better align pension fund service provider incentives with the clients’ long-term investment performance, and expand risk identification and management practices to consider systemic and extrafinancial factors that contributed to the current financial crisis.”

Maybe the bad situation at some of the giant public pension funds will lead to a culture shift that permeates public and private sector plans of all sizes. According to The Wall Street Journal, there’s a lot of speculation about the mind-set of Joseph Dear, the new chief investment officer at Calpers, the granddaddy of public pension funds and one of the most influential institutional investors in the country, which has seen $85 billion in declines since October 2007. The report notes that Dear’s background isn’t in money management but in “government, managing staff” and that he intends to try to bring more appropriate levels of pay at major companies. ###