Investing Novices Call the Shots for $4 Trillion at US Pensions

Canada selects directors to oversee its public pension funds for their financial expertise and pays some six-figure salaries. In the Netherlands, board members must obtain approval from the central bank.

In the US, a lineup of unpaid union-backed reps, retirees and political appointees are the vanguards of a $4 trillion slice of the economy that looks after the nation’s retired public servants. They’re proving to be no match for a system that’s exploded in size and complexity.

The disparity is dragging on state and local finances and — together with headwinds that include a growing ratio of retirees to workers and ...