The fiduciary responsibilities of Fund trustees on the issue of investing in CUC

I learned a long time ago that if you are not wealthy, you had better have information. Not information in the aggregate —obviously no one can know everything. I took that bit of wisdom to mean if you need information, at least know where to go to get the answers you need. It was Jefferson who said, “He who knows how little he knows—knows much.”

Today the quest for answers to life’s persistent questions can almost always be found by “Googling” the question. The secret, of course, is to know what question to ask. The Internet is the 21st century’s desk top library.

This brings me to the issue concerning the suggestion of the possibility of the Retirement Fund investing in CUC. I became curious as to the whether—in my professional opinion—such a reckless and unjustified use of members’ money might be a dereliction of duty on the part of the board of trustees’ fiduciary responsibility to Fund members.

There has been far too much playing around with the members’ future financial security on the part of the administration and the Legislature and the members should organize themselves to protect their money or at least become knowledgeable as to the obligation Fund trustees have in the prudent investment of members’ financial resources.

There have been a growing number of class-action lawsuits recently brought on behalf of participants in retirement plans covered by the federal “Employee Retirement Income Security Act” (ERISA). This federal law has raised the level of concern among trustees and sponsors.

Fiduciary responsibilities and personal liability have become of increasing interest and concern of trustees throughout the United States. While ERISA covers more than 700,000 retirement plans of public and private firms, nonprofit and government plans are subject to the same rules. Class action lawsuits have increased concern throughout the country about the proper execution of fiduciary responsibilities.

In May 2004, the Department of Labor launched its Fiduciary Education Campaign called, “Meeting Your Fiduciary Responsibilities” for those charged with the management of member’s pensions. (See the DOL website at http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html).

As the website points out, “While ignorance was never bliss for plan fiduciaries, the campaign sets the stage for DOL to say ‘we told you so’.” All trustees of pension plans have thus been forewarned, according to the federal government.

A person is a fiduciary if one performs fiduciary acts such as a trustee, an investment advisor, any and all individuals exercising discretion in the administration of a plan, all members of a plan’s administrative committee and—get this—”those who select committee officials.” I leave it to the reader to “guess who that is.”

“Under ERISA, fiduciaries have potential liability for the actions of their co-fiduciaries, so a fiduciary cannot escape liability by pointing fingers. Furthermore, while hiring investment advisors may result in shared responsibility, it doesn’t eliminate it. A fiduciary is required to use due diligence in hiring and regularly monitoring the activities of all service providers to the plan. While delegation is often necessary in administrative activities, it is a double edged sword in a fiduciary environment.”

Think about that in terms of considering an investment in CUC. The Buck Research website points out that a “plan’s trustee’s responsibility extends under both common law and ERISA to collect plan contributions including delinquent contributions.”

The DOL’s Field Assistance Bulletin (FAB – 2008-01) “has clarified that the failure of a plan’s named or functional fiduciary to assign the obligation to monitor and collect delinquent plan contributions to either a trustee, an investment manager or a fiduciary who will direct a limited power trustee may result in liability to the fiduciary.”

I presume a Buck consultant has briefed the trustees on the above since, to my knowledge, the firm has performed work for the Fund—but I think it’s also very helpful for those members who might be interested to also know a bit about fiduciary responsibility as concerns those who are managing their money.

My dear sweet granny said, “Billy, knowledge is power.”

According to Buck, “The DOL found instances where plan documents and instruments were ambiguous with respect to monitoring and collecting delinquent plan contributions. When instruments are ambiguous, employer contributions are delinquent if not made within a reasonable time after the obligation to make the contribution arises.”

I’ve been harping for years about the central government’s failure to honor its legal obligation to the Fund by failing to make its employer contribution payments. Now even the Feds are concerned about this “deadbeat” issue that seems to prevail among many pensions.

The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets, according to DOL.

Courts may take whatever action is appropriate against fiduciaries who breach their duties under ERISA, including their removal. ERISA applies to both the administration of employee pension and health benefit plans.

A fiduciary relationship to trust and confidence is one where the fiduciary holds or controls property for the benefit of another person acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them. This obviously involves carrying out their duties prudently.

In terms of legal liability, in ordinary cases, the standard of conduct is whether the individual has acted as any ordinary, reasonable prudent person would have behaved under the circumstances. However, as a fiduciary trustee, the individual is held to a much higher standard of conduct.

To meet the “prudent man” standard, fiduciaries must: make themselves reasonably knowledgeable about the options available; investigate a variety of options and compare choices with competing offerings; keep detailed records showing how the final decision was made and be aware of which due diligence processes fall to the fiduciary.

Think of the above in terms of investing in CUC.