Fiduciary Education is Key By: Diana PowellESQ. 2013.10.16

“If you can’t explain it simply, you don’t understand it well enough.” Albert Einstein

ERISA explains that a fiduciary is required to act reasonably and with due diligence under the present circumstances that a “prudent” person under the same or similar circumstances, and acting in a like capacity and “familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”   A fiduciary’s behavior is also judged to have a “high degree of knowledge” when scrutinized by outside judges. (JCX-16-90, June 6, 1990)  In addition, present experts go so far as to warn that the Department of Labor is about to issue regulations requiring formal training for fiduciaries.  Therefore, the most effective way to meet this expectation of fiduciary knowledge is to acknowledge the education piece within the governance documents of the corporation.

Knowledgeable people, with experience and expertise in finances and retirement planning are placed in positions as fiduciaries over the company’s retirement plan.  Fiduciaries are appointed because they have knowledge of the financial retirement plans of which they are going to be the fiduciaries over.

Due to the ever changing and complicated pace at which ERISA laws change and develop over time, there needs to be a plan in place for continuing education to address the changes and revisions to the laws in a timely manner.  Companies need to acknowledge that their fiduciaries are keeping pace with the ever-changing laws with regard to retirement plans by providing continued fiduciary training.  This training has been shown to provide “prima facie evidence of a prudent process.” (Barstein)

It is fair to state that committing to a plan of continued fiduciary training and education meets the prudent standard set forth by both the Department of Labor and the Courts in companies meeting part of their fiduciary duties to their plan participants.  The next piece of this prudent pie would be to codify it within the government documents of the company thereby making it part of ongoing process.  One of the ideal documents to include this language in is the Investment Policy Statement.

According to the Department of Labor Bulletin 94-2, Investment Policy Statements “serve a legitimate purpose in many plans by helping to ensure that investments are made in a rational manner and are designed to further the purposes of the plan and its funding policy … to provide general instructions or guidelines to be applied in all applicable … types of investments.”   Therefore, the Investment Policy Statement is one of the best places to include statements regarding the company’s commitment to providing fiduciary education and training for committee members.  Including language that points towards fiduciary education and training in the Investment Policy Statement by retirement committees is both prudent and a good indication of their commitment to their company’s fiduciary process.  Fiduciary education and training is the key to better serving the plan participants.

Diana K. Powell

Diana K. Powell, Esq. joined Westminster Consulting in September 2012 as Senior Legal Advisor. Previously she was a sole practitioner who advised educational organizations, government bodies and private corporations. Diana was responsible for negotiating agreements for high-tech software corporations...

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