Will Wonders Never Cease?

Will Wonders Never Cease?

Pension Trustees are still turning a blind eye to their own personal exposure when they continue to hire consultants to perform other functions such as purchase bonds and fiduciary insurance for the funds and the Trustees. The most glaring conflict is when an actuarial firm charged with determining the financial soundness of the plans turns around and puts on another hat and becomes the agent for the insurance company. That actuary has a fiduciary duty to the plan, but also has a fiduciary duty to the insurance company and is paid by both. No one can serve two masters but many consultants sell their multiple services to a plan offering a shopping cart of services. They ignore the very essence of a fiduciary's duty – to work in the best interest of the plan instead they line their pockets in as many ways as possible.

As a plan trustee don’t fall into this trap. The consultants may be wonderful people, take you out to dinner, or play a great round of golf, but at some point if your plan is in trouble it is your personal assets that are at risk and you do not want an attorney sitting across the table asking you, “Why didn’t you engage a consultant to do so many things, where is the diversification of the services you were provided?” In other words why didn’t you have checks and balances in the advice you were being given.

Also, be leery of actuarial firms who oppose fighting to oppose disclosure of fees regulations. For example, The Segal Company wrote the Department of Labor in 2008 that they reconsider their proposed rules for disclosure; eventhouhg their own letter acknowledged that there may be prohibitions for rebating that restrict their ability to discount insurance commissions, so they do sell insurance, but do not want to disclose what they are paid. So if they say they are not receiving commissions they may be violating the law, yet they don’t want to disclose this to the same people who they owe a fiduciary duty. I don’t want to single out Segal, but actuaries and other consultants have to be sensitive to this issue, not pretend it does not exist.

More importantly, as a plan trustee you have to be careful. Do not let “one stop shopping” entice you into personal bankruptcy, and your plan not providing the benefits it should be providing.