Fiduciary Process is Lacking

Here's a good article about a recent study that was conducted by Drinker Biddle & Reath, Grant Thornton LLP, and Plan Sponsor Advisors. The confidential survey was conducted online from October 2008 to November 2008, with 275 independent plan sponsors participating and assessed their understanding of investments, fees, administrative and fiduciary practices related to their plans.   The survey participants were broken down by number of employees and annual company revenue. Roughly 70% of the companies surveyed had more than 250 employees and 34% had revenues of $250 million and above.

Frankly, the results scare me because they identify serious shortfalls in the fiduciary governance process.  Plan sponsors need to realize that sound process is what drives good decision-making and ultimately, successful outcomes.  Defining and following a consistent process, gathering the right data, paying attention to meaningful key indicators, and measuring results is the only way a plan can be operated effectively and fulfill its purpose which is providing retirement benefits for participants and beneficiaries. Here's a quick sampling of some of the things from the survey that concern me most:

  • 42% of respondents do not keep meeting minutes
  • 26% never benchmark their record-keeping fees
  • 29% never benchmark their broker/advisor/consultant fees
  • 18% don't know whether record-keeping expenses are per-participant or asset-based
  • 31% don't know or are unsure of how much their plan is paying to their broker/advisor/consultant
  • 22% don't know or are unsure of how much their plan is paying for record-keeping
  • 39% don't know or are unsure whether they periodically determine whether the plan's investment options being offered are using an appropriate share class 
  • 56% of plans that intend to comply with ERISA section 404(c) have not conducted a review to determine if the plan actually is in compliance
  • 42% don't know or are unsure whether their default investment qualifies as a Qualified Default Investment Alternative (QDIA) under the Pension Protection Act (PPA)

Based on the corporate demographics of the respondents, I get the sense that the survey focused primarily on mid-to-large plans (what I would define as roughly $50 million and above).  I'm going to try to connect with the authors to see if they can give me a better idea of the size plans (in terms of assets) that are represented in the study.  My experience is that most plans in the micro and small plan market are in significantly worse shape from a fiduciary oversight perspective than what I read in the study.  

IMO, plan fiduciaries have a long way to go and need to WAKE UP and take their responsibilities more seriously. If most companies ran their businesses the way they run their plans they'd be looking for new jobs before too long.  

Kudos to the three firms who conducted the survey which you can download a full copy of, here.