Who’s Your Fiduciary?

Do you know who the fiduciaries are in your organization?

Do they?

According to an online survey of defined-contribution executives, many don’t acknowledge their role as a fiduciary, or someone who manages another party’s assets and has a legal and ethical obligation to put the other party’s interests first.

The study of 1,000 such executives conducted by global asset firm AllianceBernstein on fiduciary awareness found that almost half (49 percent) did not consider themselves a fiduciary, while another 6 percent had no idea about their status.

The survey cited four types of fiduciaries: people having primary responsibility for their DC plans; people making “all decisions” for the plan; members of the investment committee choosing or monitoring investment choices; or members of the plan’s administrative committee.

Perhaps most surprisingly, of the 104 respondents who managed plans over $500 million, 48 percent did not consider themselves fiduciaries.

The latest results are troubling for two reasons, says Jennifer DeLong, AllianceBernstein’s managing director and head of its defined-contribution practice: All the survey respondents were actually fiduciaries (according to their job responsibilities), and the confusion has only grown in recent years.

In 2011, for example, 61 percent of AllianceBernstein’s respondents correctly identified themselves as fiduciaries, but the percentage dropped to 58 percent in 2014 and hit 44 percent in late 2016.

“You’d think fiduciary awareness would actually improve [over time],” she says. “The surprising fact is that fiduciary awareness seems to be declining at a time when all roads are leading to greater fiduciary scrutiny in the marketplace.”

While no one can fully explain the trend, DeLong says, some fiduciaries may be overwhelmed with multiple job responsibilities and less focused on their fiduciary role.

Another explanation could be that fiduciary responsibilities are being divided among investment and administration committees, leading to finger-pointing by members over who’s really in the driver’s seat when DC decisions are made. The AllianceBernstein research seems to support that notion, as fiduciary awareness appears to be the lowest among those serving on investment committees (39 percent) or administrative committees (22 percent).

Still, one-third of respondents who claim primary responsibility for their organization’s plan don’t believe they are fiduciaries, and the idea that fiduciaries at larger companies with bigger plans understand their duties better than those at smaller ones is not necessarily true, DeLong says.

Indeed, some fiduciaries, regardless of company size, would be hard-pressed to define their role or address their liability status, says Beth Halberstadt, DC business leader for the U.S. at Aon Hewitt in Waltham, Mass.

“Most individuals [also] assume that if their company asks them to participate on a fiduciary committee . . . [that] they’ve got some sort of protection by their company,” she says, adding that they may be unaware of the need for fiduciary insurance to insulate them against malfeasance or mistakes.

HR leaders and other executives serving on a company’s leadership team have a joint responsibility to train fiduciaries and seek out external consultants to help them make responsible plan decisions, Halberstadt says. HR can also gather marketing information to keep fiduciaries well-informed about the marketplace. For example, by providing them with information about recent lawsuits involving excessive plan fees, she says, fiduciaries can examine fees paid by their own plan to ensure they’re getting their money’s worth.

“[Fiduciaries] should be armed with as much information and training as they can get,” Halberstadt says, “because it’s a very significant role that comes with a fair amount of risk.”

While steady streams of data and information may be helpful, nothing can replace regular, mandatory training programs for fiduciaries, says Gregg Levinson, senior retirement consultant at Willis Towers Watson in Philadelphia.

“By training them,” he says, “[fiduciaries will] have more of a vested interested in their role.”

(The latest AB research indicates two-thirds of plans offer fiduciary training programs.)

Levinson says HR leaders should make certain that training programs explain what fiduciaries can and can’t do, why they are important to an organization and ensure fiduciaries understand that outsourcing to a third party may not necessarily insulate them from future liability.

One of HR’s hurdles is overcoming any negative employee perceptions about the role, including that it’s simply a burden. HR leaders, he says, need to engage fiduciaries by helping them better understand the importance of their role and its impact on workers, both now and in the future, and ensure they properly manage their responsibilities.

Meanwhile, other research shows the fiduciary fog may not be as thick as the AllianceBernstein research paints it to be.

WTW conducted a survey in 2016 of 306 DC and defined-benefit pension-plan sponsors who mostly represented large employers. Titled U.S. Retirement Plan Governance Risks and Responses, the survey found that less than 1 percent of respondents didn’t realize they were fiduciaries. Furthermore, 66 percent said they trained for the role on a regular basis, 99 percent reported that their committees transcribe minutes from their meetings and 95 percent supported an investment policy and use an agenda for committee meetings.

From a documentation standpoint, Levinson says, taking meeting minutes and observing an agenda are the most important because they prove that committee members take their fiduciary roles seriously.

But, he says, the stark differences between AllianceBernstein’s and WTW’s survey results remains a mystery.

“Somewhere in the middle of these two surveys probably lies the truth,” says Levinson. “We see our committees [are] generally engaged and are seeing the role evolve from something that’s functional into something more strategic.”

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Carol Patton
Carol Patton is a contributing editor for HRE who also writes HR articles and columns for business and education magazines. She can be reached at hreletters@lrp.com.