Demand for independent fiduciaries to oversee employer stock held by retirement plans is increasing as the recession builds steam.
Honeywell International Inc., which plans to contribute $1 billion in company stock to its defined benefit plan by the end of this year, hired an independent fiduciary in December. Meanwhile, General Motors Corp. and a Kaiser Aluminum Corp. VEBA also have independent fiduciaries, among other companies.
“Increasingly in the last 18 months we've seen more use of independent fiduciaries for company stock,” said Samuel W. “Skip” Halpern, president, Independent Fiduciary Services Inc., Washington. “Most obviously it is for employee stock in 401(k) plans and less obvious it is for employer stock in defined benefit plans. Sometimes the stock is contributed in lieu of cash to meet the statutory minimum contribution. It's a great cash conservation method.”
“The appointment of an independent fiduciary to oversee company stock funds is growing,” Vicki L. Dungan, senior vice president-communication, Fiduciary Counselors, said in a statement. “Many companies do so as a safeguard even when they are not in financial trouble.”
Morristown, N.J.-based Honeywell hired Bank of America as independent fiduciary to oversee its expected $1 billion company stock contribution, according to Robert C. Ferris, Honeywell spokesman, and company statements. The company contributed $200 million in company stock to its defined benefit plan in December and another $200 million in the first quarter of this year. It plans to contribute $600 million more in company stock later this year. Company regulatory filings list no other allocation to company stock in the defined benefit plan.
Honeywell had $8.7 billion in U.S. pension assets as of Dec. 31. Its filing lists no other company stock in the plan. The total $1 billion in contributions would, based on current total assets, put the pension plan over the 10% general limit under pension law for a defined benefit plan.
The company stock in the fund “is under 10% now and those other contributions haven't been made yet,” Mr. Ferris said.
The contributions are voluntary, made “to improve the funded status of our plans,” the company statement said.
The independent fiduciary business is dominated by four firms: State Street Bank & Trust Co.; Fiduciary Counselors Inc.; Independent Fiduciary Services; and Bank of America. (On April 29, Evercore Partners Inc. bought Bank of America's special fiduciary services unit and formed Evercore Trust Co., which will have $12.8 billion in assets under administration and management.)
When companies hire independent fiduciaries for company stock funds, they give them investment discretion. Sometimes the fiduciaries have to make controversial decisions.