As a retirement plan committee member, you personally own the risks associated with the plan. Delegating duties and hiring vendors cannot absolve you entirely of these risks. Undivided Loyalty gives you the tools to navigate this complicated area using familiar frameworks and tools. It is a must read for all plan fiduciaries and plan committee members.
Published by Global HR GRC
If you weren't able to participate in PLI's conference in May, you can purchase, Pension Plan Investments 2018: Current Perspectives, which has my chapter on "Outsourcing Fiduciary Risk." It discusses how the some of the fiduciary duties are outsourced, but that the plan committee continues to have certain fiduciary responsibilities.
Published by PLI (May 2018)
What People Are Saying
"In less time than the typical fiduciary training session, I learned more about how plans should function on a day-to-day basis to accomplish plan objectives. Training and consultants often say 'what' should be done; this book includes great examples and lists showing 'how to' get things done. This should be a must read for all new and experienced committee members. It is a great resource to help explain objectives for plan governance in a conversational manner." - George Beckwith, CFO at National Gypsum
"'Undivided Loyalty' is an easily accessible resource that will deepen the understanding of proper plan governance by Board Members, Management, Human Resources, and Plan Advisors. Mr. Yovino, a thought leader in this space, presents a clear and practical depiction of the 12 principles of retirement plan governance. If followed, it will position any plan committee member with a firm foundation to better serve in their fiduciary capacity." - Felica Robinson, VP-HR at Family Dollar
"It's a wonderful book and will be useful to countless committee members and others who have plan governance responsibilities."
"Excellent and very readable"
"I would recommend the book to others."
"A valuable tool for new members who will need to keep a highlighter handy."
"The 'Quick Hits' at the end of the chapters are invaluable and a tremendous time saver."
"I thoroughly enjoyed it and definitely took away valuable learnings."
Quotes from "Undivided Loyalty"
One would think that the oversight by plan fiduciaries would be directed by clear guiding principles that can be easily understood and applied, and that there would be an established framework supporting a structured or methodical approach. … Unfortunately, that is not the case.
As a retirement plan committee member, you own the risks associated with the plan personally. Yes, you are personally liable. For most individuals, these are unparalleled personal financial risks.
Despite the fact that better governance drives better results, retirement plans have historically failed to focus on improving or building good plan governance.
Once the plan committee adopts and begins to apply good governance to the plan, it will begin to do a better job as a fiduciary to the plan. This is because being a good fiduciary is built into all facets of the overall governance architecture.
…serving on the plan committee involves significant responsibility. Upon accepting the role, one must be willing to accept personal liability for bad decisions. The committee members hold the plan participants and the company employees’ future in their hands.
There is no such thing as a perfect plan committee member. That’s why it is important to assemble a committee that, in the aggregate, possesses all the skills, knowledge, and attributes for an outstanding committee.
… the traits that make someone a great CEO, CFO, or other executive are not necessarily the same traits that will make for a great plan committee chair. While the chair must lead the committee, that means they must be able to establish an open and collaborative culture. The chair should visibly show a passion for and an understanding of, the role and the responsibility.
As the committee learns more about the participants’ needs, preferences, and desires, and as the committee develops its own philosophies on what will generate the most benefit for participants, the mission statement will begin to develop and become clearer.
One of the greatest challenges for plan fiduciaries is their lack of understanding of the plan risks, and without understanding the risks, the risks cannot be managed.
Because controls are neither perfect nor eternal, a critical component of having a strong control environment is that the control must be monitored.
If outsourcing is part of your plan, you must ask, what are the potential risks related to outsourcing, and how can those risks be managed?
…the plan committee can delegate roles and responsibilities, but generally they can’t delegate away their fiduciary responsibility. Thus, they must continue to be diligent in overseeing the vendors and third-parties to whom they’ve delegated some responsibilities.
The paradox, however, is that the plan committee often is delegating to a more capable, specialized third party a role or responsibility that neither it nor the company is equipped to perform. The plan committee, however, is charged under ERISA with overseeing the expert. An interesting dilemma, indeed.
More Quotes from "Undivided Loyalty"
It is reasonable for the plan to use the employer’s systems and resources, but that doesn’t mean that such reliance needs to be blind to potential risks. It is also reasonable that the plan committee will want to validate that the employer has backup systems and contingency plans, appropriate data security and firewalls, and proper testing and controls in place for updates and changes.
While an employer could get a type of insurance from the IRS that the form of the plan is qualified, there is no such option available to eliminate risk for operational compliance. Thus, it is paramount that the plan operates in compliance with the rules in the plan and ERISA.
If, then, individuals who are unexperienced or untrained, or who are an outright villain can become plan committee members, one might assume that the law does not set a very high standard for these positions. That is not the case. On the contrary, expectations are extremely high, as is the potential liability.
…a plan committee member will not be judged as an amateur or a novice or a part-time hobbyist, despite a lack of knowledge and experience. Instead, plan committee members are judged … [as] an expert in the administration of retirement plans.
Accordingly, don’t assume that by having contract guarantees you have good, meaningful, or useful performance measurements in place for that vendor.
The fiduciary compliance requirements are, perhaps, the most difficult of all the compliance requirements to understand. They are not easily navigated or mastered, and they can’t be systematized, automated, or managed by adding a control. They depend on the behavior of the plan committee or the fiduciary.
The challenge for the plan committee is how to manage conflicts and prohibited transactions if almost everyone dealing with the plan is a party in interest, and almost all transactions are prohibited (unless there is an exemption).
Unfortunately, the fiduciary responsibilities can be somewhat ambiguous and confusing, especially for a lay person. This is where the governance principles come into play. They help to clarify these standards and provide principles that the plan committee and its members can follow to meet their fiduciary responsibilities.
Transparency is the disinfectant of ill-advised fiduciary behavior.
The plan committee is like the general manager, picking the coaches, scouts, and trainer to execute the day-to-day. The GM holds the coaches, scouts, and trainers responsible for fielding a strong team for every game and with enough depth to do so for a long season. The difference between most sports teams and a retirement plan, however, is that the retirement plan’s season never ends. Are you prepared to go the distance?
The assessment process is the way in which the committee paves the path for future improvements in all areas, even in areas where it believes it is performing well.
Far too often, however, the plan committee becomes a passenger on the plan’s journey, and it neither sets the destination nor plots the course. It defers to the “experts,” the vendors, the attorneys, and the consultants who drive the agenda, set the goals, and control the discussion leading to decisions. To fulfill its oversight role, the plan committee must leave the passenger seat and take control as the captain.