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Ms. Kangkang Zhang
Ph.D. Candidate in Accounting
School of Business
University of Connecticut

In recent years, the looming threat of substantial unfunded liabilities and the obligation to meet these financial commitments have become critical issues for numerous state pension plans, prompting concerns about their solvency and management. This study examines the effect on public pension plans of investigations by the U.S. Securities and Exchange Commission (SEC). Utilizing a stacked cohort difference-in-differences design, I observe that state pensions tend to improve investment performance when subjected to SEC investigation. The observed effect is more pronounced for state governments with more conflicts of interest among agencies, suggesting that a reduction in such conflict serves as the channel for the observed effect. The enhancement of pension fund performance stems primarily from a shift toward passive asset allocation, reduced investment biases, and reduced investment costs. It is accompanied by a decrease in the accounting discretion of state pensions and an increase in cash contributions from participating employers and state governments. Collectively, these findings suggest SEC scrutiny significantly affects the functioning of state pension plans.