TRUSTEES AND FREEBIES
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April 20, 1998 01:00 AM

TRUSTEES AND FREEBIES

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    Reprints Print

    The Feb. 23 Opinion Page column by Steve Hemmerick, "Trustees: No More Freebies," comes to the correct conclusion, but that conclusion is based on faulty reasoning.

    Mr. Hemmerick's conclusion that public pension funds should start paying the full cost of sending trustees to conferences and seminars is right on target and long overdue.

    Plan trustees have a fiduciary responsibility to fully educate themselves in administration and operation of pension plans they oversee. This knowledge can be gained through attendance at conferences and seminars; through discussions with other system trustees; and most importantly, by listening to their own internal staff.

    Trustees sometimes forget their own staff members are the experts hired to run their pension plans on a daily basis. Internal staff are the individuals closest to any problem and, therefore, the best source of solutions. In addition, internal staff has no vested interest in selling something to trustees via their recommendations. Contrast this with investment managers spending excessive amounts wining and dining trustees in hopes of securing a lucrative investment management assignment.

    Conferences and seminars can be valuable learning experiences for trustees, but do not have to be held at posh resorts of overseas locations. Trustees have a fiduciary responsibility to look first at conferences and seminars sponsored by organizations without substantial funding provided by investment managers, consultants or brokerage firms. This practice can help trustees avoid conflicts of interests and keep a lower profile in local news media.

    Organizations like the International Foundation of Employee Benefit Plans conduct excellent seminars teaching trustees about the full range of pension plan operations, not just investments. These seminars are held at locations offering reasonably priced accommodations. Some even offer certification opportunities allowing trustees to acquire proof of their efforts to meet fiduciary responsibilities. The minimal expense of these educational endeavors is affordable by most all public pension plans.

    The commentary rightly states money managers buy access to trustees. Many trustees find it difficult to fire investment managers who perform poorly, even if they have not been entertained recently by those same investment managers.

    Trustees' fiduciary responsibilities require all investment management decisions be made with blind eye to parties involved. Trustees should give much greater weight to factors such as performance against peer managers, potential transition costs, market conditions for a portfolio liquidation, low-cost means of transferring existing portfolio assets, etc. Decisions should not in the least be affected by personal relationships with those same investment managers.

    Trustees should be strongly encouraged to make the most of reasonably priced education opportunities. Trustees' role as a plan fiduciary is not an easy one but neither is it an opportunity to be extensively entertained at investment managers expense. If the educational seminar and conference expenses are kept within reasonable limits, few taxpayers or plan participants would question the value gained by these endeavors.

    Educated trustees are always going to make better decision-makers and excel in their role as policy-makers. Public fund trustees should not hesitate to budget for educational opportunities and not rely on the investment management community to pay the cost of these seminars and thereby create possible conflicts of interests for the trustees.

    This letter represents my personal opinion and does not reflect the views of the Louisiana State Employees' Retirement System or its board of trustees.

    James O. Wood

    Executive Director

    Louisiana State Employees'

    Retirement System

    Baton Rogue, La.

    Strong in DC plans

    For the second year in a row, Strong Capital Management Inc., was not included in Pensions & Investments' Special Report of Defined Contribution Providers. We were very disappointed to not be included in your April 6 report.

    Strong provides fully bundled defined contribution services, investment-only services, and investments through more than 100 401(k) alliance partnerships. Had we been included, Strong would have shown up in your charts with (a) $2.2 billion in defined contribution assets managed internally, (b) more than 27,000 participants receiving bundled services, and (c) more than 300 plan sponsors receiving bundled services.

    The marketplace is taking note of Strong's defined contribution services as we distinguish ourselves in both investment results and participant education. Your publication is highly regarded in our industry and read by many people. I am sure Pensions & Investments will want to include a firm of our scale in its rankings in the future.

    Phillip F. Stambaugh

    Senior vice president

    Strong Retirement Plan Services

    Menomonee Falls, Wis.

    'Three-legged stool'

    You use your Jan. 26 editorial, "Pension Power," as an another attack on Social Security as a social insurance program designed to protect working Americans with a solid core of income in case of disability, death or eventual retirement.

    You talk about how the 1,000 largest U.S. pension funds, including ours, must stick to our mission of advancing the interests of pension participants in building and securing retirement income.

    Financial advisers and retirement planners still use the "three-legged stool" paradigm to provide financial security in retirement: Social Security, a defined benefit pension plan, and personal savings.

    As a pension plan that has handled our role prudently in providing a defined benefit plan for all of our members, and a voluntary defined contribution plan for those of our members with resources to participate, we are very disturbed about your constant drumbeat to change the defined benefit Social Security system into just another defined contribution savings plan.

    We are speaking out in the debate to protect and improve Social Security in a way that will keep the plan financially sound so it can continue to provide working Americans with its array of financial protections.

    Sandra March

    Melvyn Aaronson

    Trustees

    Teachers' Retirement Board

    Teachers' Retirement System

    of the City of New York

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