Governance remains one of the thorniest issues facing defined benefit plan executives, said panelists speaking about the topic at Pensions & Investments' Investment Innovation and the Global Future of Retirement conference in New York on Tuesday.
Despite widespread use of the CFA Institute's global investment performance standards and its code of conduct for pension trustees, many pension boards are in need of continual education about their fiduciary roles and duties, said Jonathan Boersma, executive director of the GIPS program and head of CFA's performance standards.
One of the first problems is finding someone who will serve as fiduciary, said Martin J. Sullivan, senior vice president and head of asset owner solutions, Americas, at State Street.
“Being a fiduciary is kind of a hot potato,” Mr. Sullivan said. “Nobody wants it.”
The scarcity of willing bodies has led to a rise in the number of requests from defined benefit plan executives to name State Street their fiduciary so they can transfer the fiduciary risk, Mr. Sullivan said.
While it's usually clear who serves as a fiduciary on public defined benefit plans, the question is much murkier for corporate plans, said pension attorney Ian D. Lanoff, principal at Groom Law Group.
The company's board of directors and the plan's chief investment officer should not have fiduciary input on pension matters, but from there, Mr. Lanoff said it can be hard for the company to determine “who should be fiduciaries and what their liabilities are.”
One aspect of fulfilling responsibility as a corporate plan fiduciary is plenty of fiduciary insurance, Mr. Lanoff said.
“Corporate plan fiduciaries tend to buy a lot of insurance to protect themselves and so they can pay for legal representation if they are sued for fiduciary violations,” he added.
Public plan trustees, on the other hand, face far more headline risk than their corporate brethren, Mr. Lanoff said, noting that the former “operate in a fishbowl,” facing constant questions about what the pension plans' investments are in response to world events and corporate scandals.
Corporate boards find it easier to ignore the headlines and “focus on the merits of the investment,” Mr. Lanoff added.