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ERISA-Plan Governance
The following is an excerpt from the Retirement Plan Survey 2009, conducted by Chicago-based management consultant Grant Thornton, in conjunction with Chicago-based Plan Sponsor Advisors and Drinker Biddle & Reath, also with offices in Chicago. Central to the survey is the finding that only 29 percent of plan sponsors polled report a clear chain of authority for their plan's governance committee, making it difficult for most of them to support certain fiduciary decisions if faced with a Department of Labor audit. Among the findings: The Pension Protection Act of 2006 has caused a substantial shift from money-market and stable-value investments as default investments to target date or lifecycle funds. PPA has given cause for plan sponsors to revisit which default investments their plans utilize, and the result is that most plan sponsors have implemented changes. Last year, 55 percent of plan sponsors surveyed were using a money-market fund or stable-value product as the default investment, while this year only 25 percent of plan sponsors are using these investments as the default. In contrast, last year 17 percent of plan sponsors were defaulting participants into a target date or lifecycle fund, compared to 52% of plan sponsors this year. FASB Statement No. 157 (which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair-value measurements for plans with fiscal years beginning after November 15, 2007) is anticipated to have a significant effect on employee-benefit-plan financial reporting. Numerous implementation questions continue to exist, yet only a little more than half (53 percent) of the respondents feel that they are ready to comply with the requirements of the standard. Only 23 percent of the respondents have discussed with their plan's third parties (e.g., custodian) the planned approach of those third party-information providers to generate the information that will be required to meet the new disclosures required by FAS 157. This is particularly alarming, as preparing to meet the requirements of FAS 157 will undoubtedly require coordination among plan management, custodians, investment fiduciaries and auditors. As relates to governance, the survey found it worrisome that only 58 percent of plan sponsors said they maintain minutes of meetings (down from 79 percent in last year's survey). Only 27 percent use an independent party to analyze plan fees (down from 45 percent in last year's survey), and only 29 percent of respondents reported that they had established a clear chain of authority for their plan's governance committee (down from 41 percent in last year's survey). The sponsor of an ERISA-covered plan has a fiduciary duty to operate the plan for the exclusive benefit of its participants and beneficiaries. In addition, 65 percent do not require plan management to periodically sign conflict-of-interest statements, which is especially alarming given the importance that the DOL places on the "exclusive benefit" rule. Plan sponsors are most knowledgeable about plan recordkeeping fees, Form 5500 reporting fees, advisor or consultant fees and compliance-testing fees. Plan sponsors need to understand their fees, how much revenue sharing their plan is receiving and how the revenue sharing is being used. Knowing this information will help plan sponsors evaluate the reasonableness of their plan fees, whether this determination is made internally or by a third party. June 16, 2009 Copyright 2009© LRP Publications |
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