In my view, you overlooked a couple of key points in your "Unsuitable limits" editorial in the June 28 issue. Let me preface my comments by stating that my fund's actuary (a major firm) has not proposed liability limitations on their work.
The first point overlooked is that the insurance coverage available would not make much of a dent in the potential claims a plan sponsor of a large fund might pursue but, even at low levels of coverage, the premiums have become egregious.
The second, and far more important, point is that implied limits may exist even if express limits are not stipulated. For example, if a plan sponsor is dealing with someone who is effectively a sole proprietor incorporated as an LLC, the assets of the firm might consist of a desk, a phone and a personal computer. Would a plan sponsor be better off having unlimited liability with such a firm or with a large firm that restricts liability exposure to X times their annual fee? I believe the answer to that should be self-evident.
Unless plan sponsors and actuaries are able to come to reasonable agreements on this subject, I could easily envision actuaries migrating to sole-proprietor arrangements. Under such arrangements, I fear that plan sponsors would be relegated to dealing with individuals who have no meaningful corporate assets and severely limited depth in terms of staff resources. In my opinion this would dramatically increase risk to the plan even though it would likely comport with some people's view of unlimited liability.
Preventive maintenance through periodic due diligence exercises, such as actuarial reviews (audits), seems to me to be far preferable to finger pointing related to errors that may have been allowed to go undetected for protracted periods. Proactive due diligence is very much a part of many of the relationships fund officials have with outside service providers — in my view, actuaries should be no exception.
Missouri State Employees' Retirement System