Effective Investment Stewards Should Take a Bow

In case you missed it, check out the quirky indie film "In A World..." If you like movies as I do, you will enjoy this lighthearted comedy about the supposed rough and tumble world of voice-overs. The first few minutes are devoted to the memory of Don Lafontaine, the uber vocal artist of countless trailers and commercials who died at the age of 68 in 2008. The story then proceeds to chronicle the efforts of a character played by actress Lake Bell, Carol Solomon, in competing for gigs in a mostly male-dominated industry. (Kudos to Ms. Bell for writing, directing and producing this cinematic gem as well.) Various sub-plots involve the reinforcement of a shaky marriage, connecting anew with a less than supportive father and getting "used" by a female film executive who sees dollar signs in empowering women at the expense of boosting Carol's ego.

Aside from its entertainment value, the production stayed on my mind, hours after the popcorn was gone. Here is why. In a final scene, Carol decides to help young women with squeaky voices learn how to better present themselves. She asks "Are you ready to be heard?"

Applied to the pension world, the question is apt. In an era of rising enforcement and litigation activity, I have often wondered why more governance-focused plan sponsors are refusing to take a bow. In speaking to several of their representatives, the feedback I received is that visibility can be a two-edged sword. My understanding of what others have said to me is that affirmative "best practice" communications might be viewed as a defensive tactic to hopefully keep participants happy and therefore unlikely to sue. The danger is that those same statements could be seen as raising awareness of issues that will lead to questions and unwelcome attention to topics such as fees, risk management and vendor selection.

The subject of how much information to provide is certainly an important one to address. The president of retirement plan services at Lincoln Financial Group, Chuck Cornelio, writes that "The move away from process-focused messages, such as how to enroll, plan mechanics and investment selection, to conversations around the projected outcomes of a participant's savings behaviors and strategies, including future monthly retirement income, spending power and retirement lifestyle, will not happen overnight." Click to read "5 critical elements of retirement plan communication" (Benefits Pro, November 12, 2012).

A recent court action has shed light on the attorney-client privilege as relates to ERISA plan communications. Interested readers can download the presentation about the fiduciary exception rule by Attorney James P. McElligott (Partner, McGuireWoods) and Attorney Ronald S. Kravitz (Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor). It is entitled "ERISA Counsel's Communications with Plan Fiduciaries and Attorney-Client Privilege" (Strafford Continuing Legal Education, April 3, 2013). Attorney McElligott adds that "Fiduciary communication is a critical area. The process starts with a well-written Summary Plan Description ("SPD") but requires constant thought and vigilance."

In its "Fiduciary Checklist," T. Rowe Price authors provide a long list of items that should be disclosed to participants. It is certainly a good start but I would add numerous sections to that list about the governance of any particular retirement plan.

This topic will receive more attention from this blogger, especially as different countries approach the issue of pension governance as a recognized problem, with some plans badly in need of a solution.