Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Innovation Investing Conference
    • 2022 Defined Contribution East Conference
    • 2022 ESG Investing Conference
    • 2022 DC Investment Lineup Conference
    • 2022 Alternatives Investing Conference
Breadcrumb
  1. Home
  2. Editorial
September 03, 2018 01:00 AM

Keeping vigilant eye is top priority

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Roger Schillerstrom

    The defined contribution revolution, which has spread from the United States to other countries, might be thought of as the new technology of retirement provision.

    Like any new technology, the first models had flaws that had to be addressed and are still being addressed. Countries still in the process of introducing defined contribution retirement systems, such as Ireland, can learn from the early adopters and avoid the flaws.

    Likewise, U.S. states or cities planning retirement programs for workers without an employer-sponsored retirement program, or starting such plans for public employees, can avoid problems by carefully designing plans with the lessons of the early adopters in mind.

    A critical issue is fiduciary responsibility. Who bears the fiduciary responsibility for ensuring the assets are managed solely in the interest of beneficiaries? Who is responsible for hiring and monitoring those investing the assets of participants, and for negotiating fees? What organization will ensure that the fiduciaries are fulfilling their responsibilities? What penalties can be imposed on fiduciaries who neglect or breach their duties? These questions should be addressed in law, regulation or plan documents. There must be no ambiguity or confusion.

    In the U.S., corporate plan participants have brought many lawsuits alleging plan fiduciaries have failed to fulfill their duties by choosing high-fee actively managed mutual funds when lower-fee options were available. Other suits have been brought against trustees for failing to monitor, or to take timely action when required.

    Australia's once-admired compulsory superannuation scheme has come under withering criticism from a royal commission for a lack of regulation that allowed the trustees of the funds offered to workers to operate out of sight of the beneficiaries.

    The result was the funds — retail funds offered by banks, and industry funds offered by unions — often charged the beneficiaries high fees while providing little service, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry said in August after several weeks of hearings.

    A study by a University of New South Wales economist estimated the financial services industry in Australia had extracted around A$700 billion ($511 billion) from the country's savings pool since 1992 when the compulsory superannuation system was introduced. Other estimates were higher. The Australian Securities and Investments Commission, in a paper prepared for the hearings, estimated as much as A$1 trillion might have been siphoned out of client accounts in fees for no service since 1992.

    This occurred because fund trustees, who were supposed to act in the best interests of the beneficiaries of the funds, were not doing so, but were looking after their own interests or the interests of the banks or insurance companies managing the retail funds.

    The problem appears to be that neither of the agencies overseeing the superannuation funds was clearly responsible for ensuring trustees acted in the interests of the beneficiaries and made sure the fund sponsors did so.

    The Australian Prudential Regulation Authority is responsible for ensuring the fund providers prudently manage their businesses. It did not see itself as a regulator of trustee conduct. ASIC saw itself as responsible for monitoring the conduct of members of corporate boards, not superannuation fund trustees. As a result, neither monitored the fund trustees to ensure they were fulfilling their fiduciary responsibilities, reports said.

    In the U.S., the Department of Labor monitors fiduciary performance. In addition, disclosure rules give employees insights on how their funds are performing and what they are paying for the investments.

    As new defined contribution plans are put into place in the U.S. and in other countries, ambiguity about the scope of fiduciaries' responsibilities and who is responsible for monitoring their behavior must be avoided. In addition, participants must have enough information to monitor the service providers.

    Related Articles
    Ireland to introduce mandatory DC program in 2020
    Europeans seeing funds as solution to DC dilemma
    Australian commission spotlight less kind to retail super funds than to industr…
    Australia's 'best in show' gambit facing tough sell
    Recommended for You
    Pensions earnings cartoon
    A heady year, but risk exercises remain key
    No shortage of topics in 2021
    No shortage of topics in 2021
    Assumed rate of return cartoon
    Consider leverage to avoid lowering return rates
    OCIO, Anchor in Rough Seas
    Sponsored Content: OCIO, Anchor in Rough Seas

    Reader Poll

    May 9, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Are Factors a Thing of the Past?
    Q2 2022 Credit Outlook: Carry On
    Leverage does not equal risk
    Is there a mid-cap gap in your DC plan?
    Out of the Shadows: The Revolution in Shadow Accounting
    The pivotal role of fixed income markets in the ESG revolution
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    May 9, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Innovation Investing Conference
      • 2022 Defined Contribution East Conference
      • 2022 ESG Investing Conference
      • 2022 DC Investment Lineup Conference
      • 2022 Alternatives Investing Conference