Pub. 2 2011 Issue 2

www.wvbankers.org 22 T he essence of your company’s retirement plan, whether it is a 401(k) plan, profit shar- ing plan or defined benefit pension plan, is the plan trust—designed to ensure future income for employees participating in the plan and their beneficiaries. Retirement plan trusts must be administered for the exclusive benefit of those participants and beneficiaries. The Employee Retirement Income and Security Act (“ERISA”), established 1n 1974, sets the standard of conduct for those who manage retirement trusts. ERISA created standards for plan administrators and investment advisors to protect employee pension and health plans in the private sector. The standard of conduct includes loyalty, due care and pru- dence. Cultivating and maintaining a culture of fiduciary responsibility is essential for an organization to navigate these treacherous waters. According to the Foundation for Fiduciary Studies, today more than five million people have the legal responsibility of prudently managing someone else’s money. Given the $10 trillion plus dollars of retirement plan assets at stake, one would assume that fiduciaries are trained and licensed to ensure proper conduct—yet there are no licensing or educa- tional requirements for retirement plan fiduciaries. [1] That is because the management of a retirement trust is rarely the sole responsibility of one individual—it is typically shared among a number of people that have other responsibilities in an organization. To add to the confusion, there are many different definitions, interpretations and rules regarding fi- duciary responsibilities, and those that serve in this capacity are often confused as to what they should be doing. Cultivating a culture of fiduciary responsibility is critical to helping people entrusted with performing these critical duties and responsibilities, and minimizing liability for your bank and your Board. Where do we start? Often, it is said that managing a prudent process is central to fiduciary responsibility. This focus on process can seem vague, but it does not have to be. A fiduciary must have a basic outline for the process of managing the retirement plan trust. It is this process that provides a framework to cultivate a culture of fiduciary responsibility. For ex- ample, if you have ever been asked to sit on an investment committee for a local charity, you are aware of the lack of structure in the decision making process. This same lack of structure is common with many small business retirement plans. In response to the need for guidance for fiduciaries, the non- profit Foundation for Fiduciary Studies was established to define the prudent practices for creating a fiduciary process. Step 1: Organize The process begins with fiduciaries educat- ing themselves on the laws and rules that will apply to their situations. For example, fiduciaries of retirement plans need to understand that the ERISA is the primary legislation that governs their actions. Once fi- duciaries identify their governing rules, they then need to define the roles and responsibili- ties of all parties involved in the process. Step 2: Formalize Formalizing the process begins with creating the retirement plan trust’s goals and objectives. Fiduciaries should identify factors such as investment horizon as well as an acceptable level of risk and expected return. By identifying these factors, fidu- ciaries create the framework for evaluating investment options. These steps should then be outlined in a written investment policy statement, which provides the necessary detail to implement a specific investment strategy. Cultivating A Culture Of Fiduciary Responsibilty By Mark Hogan, Regional Marketing Director, Pentegra Retirement Services