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Sharing Responsibility
More employees should be willing to share corporate responsibility — no matter what their positions ("Turning the Screws," From the Editor, January). There is not a single person working in a U.S. public company today who should not be able to read and understand a financial statement. All employees should also understand the basics of Sarbanes-Oxley and what its implications are for the CEO and CFO, and be in a position to help improve financial controls and performance. It may take time, but more and more employees will have to get educated on the basics of Sarbanes-Oxley and of finance.
Jessica Byrnes
Via E-mail
Who's the Fiduciary?
Randy Myers did a great job in the December 2005 article "Games They Play," but he did not go far enough in terms of presenting solutions to the issue of pension consultants and conflicts of interest.
Sending SEC-model questionnaires now to consultants to disclose and ascertain possible conflicts of interest may be useful for information purposes, but the horse left that barn a very long time ago. Damage to pension and 401(k) plans from conflicted advice may have already been done, and some observers estimate the losses run in the billions of dollars. Could the situation have been prevented? With trillions of ERISA plan dollars in play, will it happen again only in another form? Can CFOs better defend themselves, the board, the retirement plan, and the employees?
CFOs should recognize that they are always at some risk when working with consultants, vendors, and service providers that disclaim fiduciary status to the company's retirement plan. The CFO should ask every plan vendor or consultant, "Are you a fiduciary to our plan?" The answer will reveal who assumes the highest level of responsibility and shares the CFO's level of fiduciary liability. A nonfiduciary vendor retains the legal right to represent its own self-interest in the business relationship ahead of the best interests of the plan, the CFO, other executives, the board, and the employees.
CFOs cannot be effective leaders in pension- and 401(k)-plan management and defend against consultant and vendor self-interest without substantive fiduciary training. The SEC and consultant issues raised now are a direct result of executives being charged with management and oversight of large amounts of retirement-plan assets but with no training for the task. However, the CFO should not be expected to be the only trained and vigilant executive. Every Treasury, HR, and support staff member that touches the corporate retirement plan should be trained in best plan management practices, their duties, and responsibilities. The result is less risk exposure to CFOs, executives, and board members, and better retirement plans for employees.
Douglas Foster
Senior Vice President
Denali Fiduciary Management Corp.
Via E-mail
Conflicts of interest may be more subtle than you think. Everyone has a conflict of interest in his or her work with ERISA retirement plans. Independence is not just a matter of how one gets paid. Remember, there is no PCAOB equivalent in the benefits- or pension-consulting world. Thus, one brand-name consulting firm that proposed to provide independent advice already had a $500,000 health-and-welfare consulting assignment on the books. Is that advice independent? Who would risk a $500,000 assignment by telling the plan sponsor something it doesn't want to hear? In this case, the firm is about as independent as Arthur Andersen was of Enron.
Another major consulting firm that provided recordkeeping and actuarial services to a Fortune 500 company also proposed that it be retained to provide a fiduciary audit of the plan sponsor's conduct. How independent could that audit be?
Investment consultants may or may not be independent of the investment funds they recommend. For example, some studies show that you have about a 10 percent chance of identifying the active investment manager that will outperform a passive benchmark over the next five years. Given that statistic, what is the prudent basis for choosing to spend plan assets pursuing the "rewards" of active investment management on a defined-contribution plan?
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