This
week we’ll commemorate Independence Day – but with all of freedom’s
lessons, there are certain things that plan committees (still) have in
common with the Second Continental Congress.
Certainly anyone who has ever found their grand idea shackled to the
deliberations of a committee, or who has had to kowtow to the
sensibilities of a recalcitrant compliance department, can empathize
with the process that produced the Declaration of Independence we
commemorate this week.
Consider these similarities:
Committee members should understand their obligations – and the risks.
Those that gathered in Philadelphia that summer of 1776 came from all
walks of life, but it seems fair to say that most had something to
lose. True, many were merchants (some wealthy, including President of
Congress John Hancock) already chafing under the tax burdens imposed by
British rule, and perhaps they could see a day when their actions would
(eventually) accrue to their economic benefit. Still, they could hardly
have undertaken that declaration of independence without a very real
concern that in so doing they might well have signed their death
warrants.
It’s not quite
that serious for plan fiduciaries. However,
as ERISA fiduciaries, they are personally liable, and may be required to
restore any losses to the plan or to restore any profits gained through
improper use of plan assets. Moreover, fiduciaries have potential
liability for the actions of their co-fiduciaries. So, it’s a good idea
to know who your co-fiduciaries are – and to keep an eye on what they
do, and are permitted to do.
Indeed, plan fiduciaries would be well advised to bear in mind
something that Ben Franklin is said to have remarked during the
deliberations in Philadelphia: “We must, indeed, all hang together or,
most assuredly, we shall all hang separately.”
Money can be a sticking point.
Before it declared independence, the Second Continental Congress
created the Continental Army, named a Commander-in-Chief (George
Washington), and authorized the first printing of American money ($1
million in bills of credit). Indeed in the months (and years) that
followed,
the costs of (and means of funding) that army would be a constant source of
contention between the Congress and the leaders of the Continental Army, even after the fighting on the battlefields was over.
The costs of running a retirement plan are varied, and these days
many are borne – directly or indirectly – by the plan and participants
themselves. But if the American Revolution was fought over “taxation
without representation,” ERISA charges plan fiduciaries with an
unequivocal obligation to ensure that every action taken, every service
or service provider enlisted, be done for the exclusive benefit of
retirement plan participants and their beneficiaries.
It’s not all about money, of course. But – as the Labor Department
has noted, and as the plaintiffs’ bar clearly knows – fees and expenses
paid by the plan can have an impact on retirement savings and security.
Plan fiduciaries should be no less attentive.
It can be hard to break with the status quo.
By the time the Second Continental Congress convened, the “shot heard
round the world” at Lexington and Concord was more than a year old, but
many of the representatives there still held out hope for some kind of
peaceful reconciliation, even as they authorized an army and put George
Washington at its helm. Little wonder that, even in the midst of
hostilities, there was a strong inclination on the part of several key
individuals to put things back the way they had been, to patch them
over, rather than to take on what was then the world’s most accomplished
military force.
As human beings we are largely predisposed to leaving things the way
they are, rather than making abrupt and dramatic change. Whether this
“inertia” comes from a fear of the unknown, a certain laziness about the
extra work that might be required, or a sense that advocating change
suggests an admission that there was something “wrong” before, it seems
fair to say that plan sponsors are, in the absence of a compelling
reason for change, inclined instead to rationalize staying put.
As a consequence, you often see new fund options added, while old and
unsatisfactory funds linger on the plan menu, a general reluctance to
undertake an evaluation of long-standing providers in the absence of
severe service issues, and an overall inertia when it comes to adopting
potentially disruptive plan features like automatic enrollment or
deferral acceleration.
While many of the delegates to the Constitutional Convention were
restricted by the entities that appointed them in terms of how they
could vote on the issues presented, plan fiduciaries can’t defer that
responsibility to others (see
5 Things Your Plan Committee Members Need to Know).
Rather, their decisions are bound by an obligation that those decisions
be made solely in the best interests of plan participants and their
beneficiaries – regardless of any other organizational or personal
obligations they may have outside their committee role.
It’s important to put it in writing.
While the Declaration of Independence technically had no legal
effect, its impact not only on the establishment of the United States,
but as a social and political inspiration for many throughout the world
since is unquestioned, and perhaps unprecedented. Putting that
declaration – and the sentiments behind it – in writing gave it a force
and influence far beyond its original purpose.
As for plan fiduciaries, there is an old ERISA adage that says,
“prudence is process.” However, an updated version of that adage might
be “prudence is process – but only if you can prove it.” To that end, a
written record of the activities of plan committee(s) is an essential
ingredient in validating not only the results, but also the thought
process behind those deliberations. More significantly, those minutes
can provide committee members – both past and future – with a sense of
the environment at the time decisions were made, the alternatives
presented and the rationale offered for each, as well as what those
decisions were.
They also can be an invaluable tool in reassessing those decisions at
the appropriate time(s) in the future and making adjustments as
warranted – properly documented, of course.
Big change takes time – and effort.
Congress may have declared independence that July, but the reality
took considerably more time and effort. Though before the year was out,
Washington’s troops would cross the Delaware under unimaginable
conditions and win a stirring victory at Trenton, on their way to a
series of impressive, but largely unappreciated victories against the
British army in New Jersey – but less than a year later Washington’s troops
would winter at Valley Forge.
Independence may have been declared in 1776, but it was not won until
the victory in Yorktown, Virginia in 1781, and not official for two
years more.
We do, of course, have much to be thankful for this Independence Day;
for those who had the courage to stand up for the principles and ideals
on which this nation was founded, for those who were willing then to
take up arms to defend those principles and ideals against overwhelming
odds, and those who continue to do so to this day.
Plan fiduciaries who are doing their duty and fulfilling their
obligations aren’t exactly putting their lives on the line - but in
their own special way(s), they’re working to help assure American worker
retirement freedoms – their
financial independence – every day.
- Nevin E. Adams, JD
