Who Wants to be a Fiduciary Anyhow?

I do a lot of public speaking. I enjoy it, especially when the audience participates by providing commentary, war stories and lessons learned. As part of a recent presentation about pension governance and hidden risks, I asked what I thought was a rhetorical question.

Why would anyone want to be a fiduciary?

Often the pay is bad and the hours are long. (Individuals seldom receive any additional compensation at the same time that they are asked to assume significant responsibilities that put them directly in the "line of fiduciary fire".) One might say it's like being asked to constantly eat your peas without any hope of ever getting dessert.

Not surprisingly, several members in the audience answered: "We can't figure out why anyone would want to be a plan fiduciary."

Keep in mind that most people don't get a choice in their current position. If what they are tasked to do meets the functional definition of a fiduciary, bingo!

I'll be the first person to say that it's a good thing that people are willing to serve as fiduciaries. Assuming they are capable, knowledgeable and conflict-free, their service can make a world of difference.

Therein lies part of the problem. As I've described in other postings, pension work may not be a person's primary job and it becomes an issue of squeezing time out of an already hectic day to carry out fiduciary duties. Others may feel ill-equipped to tackle multi-million dollar decisions.

Perhaps the supply-demand dilemma for qualified fiduciaries accounts for what can only be described as a heightened interest in the notion of hiring an independent fiduciary. In his May 2006 paper on this topic, Mr. Samuel W. Halpern (former U.S. Department of Labor attorney and president of Independent Fiduciary Services, Inc.) describes some of the situations that lend themselves to hiring an independent fiduciary. These include:

"1. managing employer stock

2. tender offer

3. in-kind contribution

4. unpaid contributions

5. sale-leaseback

6. securities class action regarding employer stock

7. retiree medical plan

8. union sale to pension fund

9. merger of mutual funds

10. transaction between two investment vehicles sponsored by a single investment firm."

Echoing these sentiments about conflict and the need for independence, law professor Paul Secunda wrote that "it is not generally a good idea to represent a company or individual corporate officers in both their corporate and fiduciary capacities" and that non-lawyers should seek independent counsel for the ERISA plan and not "rely on existing corporate counsel to also represent them in their fiduciary capacity". (You may want to contact Professor Secunda for a copy of his paper entitled "Inherent Attorney Conflicts of Interest Under ERISA: Using the Model Rules of Professional Conduct to Discourage Joint Representation of Dual Role Fiduciaries".)

Is this the beginning of a new and better paradigm? posted by Susan Mangiero at 5/16/2006 08:47:00 PM