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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Welcome to the Board Room: Fiduciary Education for New Board Members
Peter MixonLuke BiermanSuzanne Dugan
National Conference on Public Employee Retirement Systems
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
IntroductionNumber of Workers
– 1975: 90 million– 2011: 150 million
Life Expectancy– 1975: Women 75 Men 67 – 2011: Women 81 Men 76
Savings Rate – 1975: 13%– 2011: 5.3%
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Today’s EnvironmentEmployees Participating in Employer‐Sponsored Plans
– 1975: 44 million– 2011: 129 million
Number of DB Plans – 1975: 103,346 – 2011: 45,256
Number of DC Plans – 1975: 207,748– 2011: 638,390
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Today’s Environment
Pension Plans Face Greater Challenges Today Than Ever:– Financial Meltdown of 2008 – Continuing Economic Effects of the Great Recession– Government Gridlock– Scandals Across the Country– Underfunded Liabilities– Moves to Restructure Plans– State and Local Budget Difficulties– Blaming of Pension Plans for Budget Woes– Demeaning of Unions and Workers
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Crisis in Confidence
These challenges are, in part, responsible for: – feeding a crisis in public confidence in pension plans
– placing greater demands on pension plans – an increased focus on ethics in pension plans
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Recent Survey of Trustees
• Amount of hours spent annually by trustees• Amount of time necessary to develop a
competent trustee• Formal orientation, mentoring or knowledge
transfer programs for new trustees• Top personality trait for good trustees
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
What Should Trustees Do in Today’s Challenging Environment?
Go “Back to Basics”
• Focus on Fiduciary Duty ‐ There is nothing more fundamental and basic for employee benefit plans than sound and effective attention to fiduciary duty.
• Training and education is critical to understanding fiduciary duty and applying that understanding in real life situations
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Importance of Fiduciary Training
• Just because something is basic does not mean it is easy or simple
• The underlying concept of fiduciary duty is not what we are typically taught • Fiduciary duty is not just about a level playing
field, or fair dealing, or being honest
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Importance of Fiduciary Training
• Without education, the principles can easily be misunderstood by well‐intentioned trustees• For example, balancing of interests is not appropriate
for trustees, as it would be for other policymakers • Trustees are not fiduciaries for appointing
authorities, employers that pay into the systems, constituencies, taxpayers, or the public.
• Trustees owe the same duty to retirees as to someone hired today
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Importance of Fiduciary Training
• The consequences for a breach of fiduciary duty can be enormous• Tax consequences • Personal liability of trustees• Co‐fiduciary liability • Reputational consequences
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Factors When Considering a Program or Seminar
• Quality of Faculty• Experience and training
• Quality of Educational Topics• Relevant• Up‐to‐date, • Different levels for beginning, intermediate and
advance trustees • Sponsoring Organization
• Reputation, Mission, Specialty
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Educational Policy• Why have a trustee educational policy
• Demonstrate commitment– To members and beneficiaries – To DOL and other regulators – To the public (crisis in confidence)
• What the policy should cover:• Who is covered• Frequency• Minimum requirements/Conditions• Reasonableness• Approved Programs
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Fiduciary Standard
• What is the fiduciary standard, and what does it mean?
A fiduciary is a person having a duty, created by his or her undertaking, to act primarily for the benefit of another in matters connected with the undertaking.
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Basic Fiduciary Principles • Exclusive Benefit Rule• Duty of Loyalty
– Avoidance of Conflicts of Interest– Prohibited Transactions/ Self‐Dealing – Impartiality
• Duty of Prudence• Duty of Care
– Diversification– Delegation– Follow Plan Documents
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Application of Fiduciary Principles
• Process, Process, Process• Documentation of Process is Key:
Under ERISA and common law, a fiduciary is not judged by the results of decisions, but rather by the process undertaken to reach such decisions
• The duty of prudence requires a standard of conduct, not outcome or performance.
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National Conference on Public Employee Retirement Systems
Pension Plan Triangle
klgates.com 16
PensionPlan
Trustees
Statutory Duties
EmployersVestedRightsMembers
Fiduciary Duties
National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Case Study
Hypothetical:“Metropolitan Pension Fund”
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Conclusion
Fiduciary Training & Education –Best Practices
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Conclusion
Culture
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National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems
Contact Information:Peter MixonK & L Gates [email protected]‐370‐7802
Suzanne M. DuganCohen Milstein Sellers & Toll, PLLC [email protected]‐ 408‐4600
Luke [email protected]‐ 408‐4600
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