Marijoyce Ryan, The Daily Record Newswire
According to the Merriam-Webster Dictionary, the term fiduciary is defined as: “Confidence or trust, as held or founded in trust or confidence, holding in trust, depending on public confidence for value or currency.”
Regardless of the size of your company’s plan assets or number of participants, fiduciaries all have the same obligations — to act with reasonable prudence, to diversify the plan assets unless it would be prudent not to do so, act in accordance with the plan documents and avoid conflicts of interest.
Essentially, they must faithfully discharge their duties in the best interests of the plan participants and beneficiaries. A fiduciary is anyone who exercises discretionary control or authority over a plan, its assets or administration, or renders investment advice for a fee.
Let’s examine some steps that fiduciaries can take that will go a long way in satisfying their responsibilities:
Process and procedure
Develop a process for reviewing the plan’s service providers on a regular basis. This includes investment managers, plan administrators, etc. Trustees should routinely review their investment policy statement and be sure that the investment manager is investing the assets accordingly.
Update the guidelines as necessary. Have a process for benchmarking your manager’s performance. Be sure you know how your manager is compensated (fee only, commissions, reimbursements, etc.).
Clearly, the Department of Labor is interested in the methods used by trustees to manage their plans. Liability depends on the procedure followed — not the end results.
Documentation
All processes should be well-documented and referred to during routine reviews. This means not only having a process by which to review your manager, but documentation of the dates you meet, what was reviewed, follow-up, etc.
Secure outside professional assistance
Fiduciaries (401[k] plan trustees) have an obligation to hire professionals if they do not have the skills or expertise necessary to meet their responsibilities. Trustees are held to the same standards as a professional investment manager. Therefore, hiring a competent manager is critical. The courts deem an “investment manager” as someone who will contractually become a fiduciary.
Trustees must also take steps to determine the level of qualifications of their investment professionals. This means that trustees must question and investigate the manager’s qualifications to make a determination as to their ability to provide expert advice. Trustees must provide the firms hired with complete and accurate data.
With over $15 trillion in private and public retirement plans in the United States, fiduciaries are charged with the highest ethical standards in their oversight of these assets for millions of workers. The majority of those in positions of responsibility are trustworthy and properly discharge their duties.
Sadly, the unethical behavior of some is forcing our government to further regulate the system. The problem is that you cannot regulate trust. More regulation means more expense — which will be directly borne by plan participants.
By employing the above measures, and continuing to maintain high standards, trustees will make great strides in maintaining the overall health of their plans — and instilling a sense of trust and confidence with their plan participants.
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Marijoyce Ryan is vice president of Fiduciary Services for Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, corporations, nonprofits and trustees. Offices are located at 183 Sully’s Trail, Pittsford, N.Y. 14534 (585) 586-4680.
