Investment Committee Governance Benchmarking

If you missed the Strafford continuing legal education webinar on September 12, click here to download the slides about ERISA investment committee governance. The ninety minutes flew by, with each speaker having lots to say. Attorney Emily Seymour Costin addressed ways for companies to minimize the risks of being party to an ERISA lawsuit or, if sued, how best to mount a defense. Insurance executive Rhonda Prussack talked about ERISA fiduciary liability coverage. I gave an economist’s perspective about conflicts of interest, delegating to a third party such as an investment consultant, facts and circumstances considered by a testifying expert and fiduciary training.

I also broached the topic of benchmarking fiduciary actions as vital to good governance, something that deserves significant attention. Certainly policies, procedures and protocols can vary across ERISA plans. However, the importance of assessing whether committee members are doing a good job is universal, regardless of plan design.

One way to grade job performance is to create a matrix of relevant attributes and compare actual deeds to expectations of what a prudent investment fiduciary would do in similar circumstances. Although overly simplistic, the image above illustrates the general notion of ranking decisions from great to bad or somewhere in between. For a specific engagement, a scorecard would be much larger because there are dozens of categories to examine.

My recommendation to anyone with ERISA fiduciary responsibilities is to engage outside counsel for a fiduciary assessment and then have the law firm bring an investment expert on board to address economics, risk management and industry norms. By self-assessing, with the help of knowledgeable and experienced third parties, investment committee members have a golden opportunity to improve weaknesses and recognize areas of strength. When there are multiple solutions to a given problem, something that is more the norm than not, brainstorming with meaningful metrics can be invaluable.

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