Illustration depicting a green roadsign with a optimistic concept. White background.

Most of us are disciplined enough to put together a financial plan or seek the help of an advisor. While true that retirement planning is important, the future should not give way to living life in the present. If you agree that every day is a gift, check out a new movie called The Hero.

Starring Sam Elliott, the recipe is straightforward. Take one aging actor who learns he has a serious illness. Add a younger love interest, a friend with a questionable work ethic, a caring ex-wife and a disappointed daughter. The result is a tale of redemption and a story about hope. The audience sees a man who is sympathetic because he wants a second chance to make a difference in the lives of those around him.

The Hero is a quiet film and likely too slow-paced for some. However, for those who crave solid character development and a ride towards grace, grab some popcorn and head to the theater without delay. Your reward is a chance to watch someone grow by recognizing his limitations and then being willing to ask for help. Lucky for him, he gets it aplenty.

There are flashbacks to the hero’s glory days as a celluloid cowboy, motivating viewers to distinguish good deeds from bad ones and understand that reality and make-believe can collide.  The scenes of this lanky “everyman” eating, sleeping and appreciating the nearby ocean are far from mundane. They reflect the “extraordinary ordinary” moments, something I describe in my book The Big Squeeze.

Sam Elliott refers to this gem of a movie by Brett Haley as a career brass ring in his June 2017 interview with Variety. I concur. The film is an enjoyable wake-up call for anyone in the doldrums. We root for the main character to live a rich and fulfilling life among friends, family and business associates for whatever time he has left. May we all be so lucky to renew and refresh, even when it seems like life hands us more lemons than we can squeeze into sweet lemonade.

 

This article entitled “Investment Fraud and the Role of Trust” by Dr. Susan Mangiero was originally published on April 19, 2017 in The Fraud Examiner, a publication of the Association of Certified Fraud Examiners that is distributed to some 65,000 fraud professionals.

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Investment fraud can happen to anyone, and unfortunately, there is no shortage of investment fraud possibilities. Affinity fraud, pyramid schemes, pump-and-dump security trading, high-return or risk-free investments, and pre-IPO scams are only a few of a long-list of schemes that could separate investors from their hard-earned money. 

Investors can find themselves the victims of fraud when they don’t do enough due diligence or put too much faith in the people selling or managing a fund. Investors around the world would be wise to grasp fundamentals of the financial services industry, especially since results from a 2016 survey conducted by the National Association of Retirement Plan Participants show that only one in 10 persons express confidence in financial institutions. Financial advisers are similarly viewed with doubt. This is problematic.

Due in part to these concerns, very few people are adequately saving for retirement and those with money frequently invest in riskier assets in hopes of high returns. Following the 2008 credit crisis, people are changing the kinds of assets allocated in their pension plans and foundation portfolios. Taking more risks isn’t necessarily bad as long as investors sufficiently understand what is being offered to them and have assurances that sufficient safeguards are in place. Moreover, savers urgently need reliable help. Fragile confidence in the intentions of financial service providers creates a friction that can discourage investors from getting the input they need.

But investment fraud isn’t just a problem for individuals. When it occurs, it taints the financial services industry and the professionals who operate with high integrity and put customers first. Low trust of an entire industry can invite additional regulation. The net effect can be unfair penalties that diligent investment stewards must pay for the trespasses of fraudsters.

Increasing Investor Confidence

Although there is no such thing as a risk-free investment, investors can take action to detect red flags and hopefully avoid problems. With the Madoff Ponzi scheme, there were some who seriously questioned whether the touted strategy was legitimate, let alone viable, and did not invest. Regarding Enron, some investors looked askance at the energy company’s reliance on a complex web of special purpose vehicles. One lesson learned from the Bayou hedge fund scandal is to verify whether auditors are independent and well respected.

In its guide for seniors, the U.S. Securities and Exchange Commission urges the use of publicly available databases to check the disciplinary history of brokers and advisors, warning that investors should “never judge a person’s integrity by how he or she sounds.” The guide also says to avoid those who use fear tactics and to thoroughly review documents. The Financial Industry Regulatory Authority cautions investors not to be pressured or to believe that a “once in a lifetime” opportunity will be lost without immediate action.

To help combat investment fraud, the North American Securities Administrators Association teamed up with the Canadian Securities Administrators to create an online quiz that anyone can take to enhance awareness of what to avoid.

Although there are organizations that formally grade companies on their trustworthiness, investors should not rely on a single metric alone. Instead they should study whether a financial service provider has a good reputation in the marketplace and what the company is doing to manage its economic and operational risks.

Financial service companies likewise have responsibilities to be trustworthy and ensure that adequate protections are put in place. Some of these critical action steps include:

  • Setting up controls to prevent rogue trading
  • Appropriately compensating salespersons to minimize conflicts
  • Providing existing and potential customers with clear and understandable investment documents
  • Regularly communicating what the organization does well to lower risks for its customers
  • Calling out questionable activities of its competitors and working with industry organizations to improve risk management and fraud prevention techniques.

Disclaimer: The information provided by this article should not be construed as financial or legal advice. The reader should consult with his or her own advisors.

As I understand, the term "consultative selling" was first used by author and sales expert Mack Hanan. The concept is simple. Know what your customer needs and offer them solutions to their problems. The process is a two-way street. Both buyer and provider are actively involved and should communicate clearly and with respect. While lots of advisors and their firms find themselves on the A list, there is a continuing flurry of lawsuits being filed that allege self-dealing, opacity of disclosures and reasonableness of fees. Visit the 401k Help Center website section regarding court decisions and legal activity to read for yourself.

As with any industry, the investment community is constantly self-examining its practices in order to improve. This is a positive thing. As I point out in "Fake News, Plagiarism and Business Ethics," good players have a vested interest in self-policing since they can be tainted, reputation-wise, as the result of bad actions of others. I’ve spoken to hundreds of buyers of financial services who question the checks and balances of those who manage their money or otherwise influence their retirement planning decisions. Frequent and clear communications with their respective advisor, consultant or portfolio executive can go a long way in assuring the doubting Thomas. There is no shortage of inspiration about how to effectively interact.

Over the holidays, I observed a back and forth between sellers and buyers at a national jewelry store. While waiting my turn, I watched shop clerks attend to customers who seemed thoroughly prepared with questions about quality and price. I’m not a big purveyor of charms but was certainly impressed with the breadth of knowledge on both sides of the cash register. I can relate. As my friends know, I have a penchant for perfume and like to treat myself to a new scent now and then. I do my research in advance, visiting sites like Fragrantica.com. Wine connoisseurs are similarly motivated to gather information and sellers are wise to help educate them.

Whenever the product or service is personal, sellers must respond accordingly. Empower potential or existing customers with straightforward information. Be prepared to answer questions. Treat each client with respect as if they really count. For some organizations, the cost of selling could be too high unless the transaction is "large enough." Size is a perfectly fine business model to adapt but make it known in a courteous way that minimums apply. A small investor today could be your large investor tomorrow.

Most selling involves humans and that means that behaviors can’t be ignored. Before he passed away, famed sales guru Zig Ziglar said "You can have everything in life you want, if you will just help enough other people get what they want."

My blog post entitled "Simplifying Retirement Planning Communications" resonated with readers. It’s no surprise that there are still discussions about how best to improve the information provided to participants. Given the amount of litigation alleging lack of transparency, sponsors are wise to offer understandable documents that can be used by employees and retirees to make financial decisions. According to "Improved Retirement Plan Communication Can Boost Confidence" (Plan Sponsor, December 15, 2016), it’s not just content but the delivery format as well. Companies are adding more retirement readiness tools to their websites, even if participants are sometimes slow to take advantage.

Financial literacy is another issue that challenges employers and participants alike. Even when adequate information is available, the recipient may be unable to digest product descriptions or performance reports. In his write-up entitled "401(k) Communication Challenges," Dr. Richard Glass bemoans the low rate of financial literacy and its negative impact on saving. His take is that defined contribution plan sponsors "have not recognized that the participants’ sense of distrust and their lack of knowledge can easily create a mindset that is conducive to inaction." He uses target date fund disclosures to exemplify his view that more should be done to put participants at ease and thereby motivate them to better prepare for life after work. His suggestions include the following:

  • Don’t sugar coat the issue of risk but instead make it known that no product is free of uncertainty;
  • Emphasize that calculations are based on assumptions;
  • Hold "educational sessions that explain to participants why arriving at the assumptions involves a lot of crystal ball gazing and why, in spite of that fact, assumptions still have to be made" for purposes of forecasting; and
  • Supply "gap analyses that show participants how many years they can expect to receive their targeted inflation-adjusted incomes at their current contribution rates."

I agree that strengthening financial literacy is essential although I am not particularly sanguine about getting everyone quickly up to speed on concepts such as diversification and risk measurement. That’s not to say that employers should look the other way. To the contrary, they should act even though some organizations will have to do more work then others. As I explain in another blog post, grade 12 proficiency in reading and math is abysmally low in the United States. Anyone who gets hired with a poor grasp of such basics may struggle with learning even elementary investing ideas. See "Employers Worry About Skills Gap That Impacts Bottom Line" (January 7, 2017).

Despite the fact that companies spent nearly $71 billion in 2015 on training, chances are those expenses will increase. Realistically, shareholders and taxpayers may have little choice but to foot the bill for further education of anyone not yet able to understand what it means to save now for later on. The Aegon Retirement Readiness Survey 2016 finds that "[A]round the world, many workers are heavily reliant on government benefits and are not saving enough to adequately fund their retirement income needs." Obviously there is no time like the present to prioritize thrift and prudent investing.

For many people, retirement planning tends to be an exercise in frustration. Some complaints focus on numbers that seek to dazzle without enlightening. Others call out language that is overly long, complex and ambiguous. The author of "HR communications falls short" (Benefits Pro, November 10, 2015) references a Davis & Company survey that validates employee angst as follows:

  • About compensation, only one out of four persons were satisfied with documents they received;
  • Regarding benefits, only fifteen percent said they were adequately apprised; and
  • Nearly ninety percent of survey-takers said they had not been provided sufficient intelligence about performance management.

These results are not good news for anyone. Shareholders are paying a company’s staff to convey important information to retain and attract talented workers. If that’s not happening, money is being wasted and that erodes enterprise value. It’s likewise problematic for active employees and retirees. Without meaningful instructions and data, they are ill-equipped to make decisions about how to save and select benefits. As a forensic economist, I’ve worked on multiple matters that addressed the frequency, magnitude and clarity of participant communications. It’s a real issue and costly when the task of communicating is done poorly.

Unfortunately, even when arguably clear and copious guidance is made available by an employer, some may resist reading and/or asking questions. As former Wall Street Journal reporter Jonathan Clements points out in "Don’t Bother Reading This" (November 18, 2016), certain persons are focused on today and not tomorrow. He adds that others "want to believe in magic" even when evidence about investment returns suggest otherwise. Finally, he bemoans the association of "sophistication with complexity." (As an aside, I don’t agree with Mr. Clements that complexity is "usually a ruse to bamboozle." However, I do acknowledge that complex economic arrangements require a thorough vetting of the risk-return tradeoff).

If my experience teaching on an investment cruise a decade ago is any indication, there are signs that financial empowerment through education is alive and well, even for those who learn on their own. Based on questions and comments I received, it was clear that the audience had a strong sense of what risks they were willing to accept and what they hoped to avoid. Admittedly, these were mostly small business owners who had grown and prospered over the years by understanding that doing one’s homework is necessary to survive.

While investment uncertainty is, by its nature, something we all face, it is always prudent to gauge risks ahead of time, to the extent possible. Employers and policy-makers who want to help others improve their financial literacy can contribute in multiple ways. Joanne Sammer advocates in HR Magazine for a "whole portfolio" focus that encompasses all savings and retirement vehicles owned by an employee and his or her spouse. See "Helping Employees Plan for Retirement" (March 1, 2014). Based on my work in the benefits world, I suggest other prescriptions to consider as follows:

  • Listen to what your constituents tell you they need to know.
  • Understand the composition of your labor force since not every demographic cohort absorbs information in the same way.
  • Become adept at storytelling to make retirement planning relatable.
  • Make it easy for employees and retirees to ask questions and receive answers in a timely fashion.
  • Get creative with snappy visuals and relevant technology tools that encourage knowledge-gathering.
  • Monitor engagement patterns and revise your communications protocol as often as needed. 

Whenever I think about getting my message out, I reflect on something a former doctoral professor shared with his students. Taking some liberties since I don’t recall his exact words, he required us to distill pages of terse text and equations into a single sound bite that a lay person could understand and care about. This drive to motivate the recipient to pay heed is undeniable. As Ryan T. Howell said in his Psychology Today article entitled "Less Is More: The Power of Simple Language" (September 20, 2012), concentrate on the problem consumers are trying to solve.

Applied to retirement planning, what’s the end goal? For millions of people, the answer is not so much about having X amount of money in the bank but more about satisfying life goals and having "enough" to make things happen.

In case you missed the announcement, today is part of a seven day celebration of National Retirement Security Week. The event is sponsored by the National Association of Government Defined Contribution Administrators, Inc. ("NAGDCA") and stems from Congressional action to:

  • Apprise employees about the need to be retirement ready in terms of personal finances;
  • Educate individuals about various ways to save for retirement; and
  • Help employers encourage their employees to save more.

While true that it’s essential to address issues such as expected lifespan, job mobility, the power of compounding and taking advantage of a company match, money is not the only end goal. One could have a substantial piggy bank but end up lonely or in search of something satisfying to do. According to "How to Retire Happy" by Stan Hinden (AARP Bulletin, September 2014), it is important to ask what comes next. Some persons end up spending more time in retirement than the number of years they worked. Kerry Close reports for Time Money that a "record high number of retirees" are unhappy. She cites an Employee Benefit Research Institute study that shows a big drop in "very" satisfied retirees from 60.5 percent in 2012 to 48.6 percent in 2016.

One suggestion is to create (or update) a life plan, even if you are far from the gold watch party. According to a Lifehack.com blog post by consultant and writer Royale Scuderi, this document should summarize "where you are now in all the areas that matter to you, where you want to improve and what you’d like your life to look like in the future." Easier said than done, pondering the big picture can be challenging but enlightening as well. As someone who is updating her life plan right now, I find the effort worthwhile. Acknowledging that you cannot recapture time reinforces the concept that one should be reflective about the past, grateful for the present and excited about the future. As Anthony Hopkin’s character said in Meet Joe Black, the years go by "in a blink."

For those who want to give it a go, check out the the narrative provided by life coach Michael Hyatt. Earlier this year, he co-wrote Living Forward: A Proven Plan to Stop Drifting and Get the Life You Want with Daniel Harkavy. An online search yields additional educational resources. (Note: This blogger has no relationship with Michael Hyatt.)

According to an August 17 press release from Fidelity Investments, "fiduciary responsibility tops plan sponsors’ reasons for hiring advisors." What’s more, this poll of nearly 1,000 defined contribution plan decision-makers makes clear that knowledgeable third parties have an edge in being hired and retained, especially if they can offer input about plan design and investment selection. Cited areas of concern include the following:

  • Increasing employee participation;
  • Properly measuring investment performance; and
  • Making sure that investment risk goals are heeded.

A 2016 Mass Mutual survey reveals similar findings that plan sponsors want help with plan design, discharging fiduciary duties and investment selection. Moreover, about two-thirds of respondents said they want an advisor who works with companies like theirs. 

It’s no surprise then that educational initiatives continue to develop in response to changing regulations and an enhanced focus on fiduciary duties. As announced last month, the American Retirement Association has partnered with Morningstar "to develop a fiduciary education and best practices program for advisors."

April 2017 will be a busy month for many as they seek to comply with large chunks of the U.S. Department of Labor Fiduciary Rule.

Thanks to the many people who shared their insights about various state retirement arrangements for eligible private company employees and the need for a proverbial umbrella to address the fiduciary gap.

Let me start with the Nutmeg State program since I discussed it in two earlier posts. Interested parties can click to download the final legislation that sets up the Connecticut Retirement Security Exchange. (Note the new name.) Several changes caught my eye.

  • On page 156 of 298, there is a provision that "If a participant does not affirmatively select a specific vendor or investment option within the program, such participant’s contribution shall be invested in an age-appropriate target date fund that most closely matches the participant’s normal retirement age, rotationally assigned by the program." If "rotationally" means "random," it will be helpful to know how board members identify age cohorts and select (and monitor thereafter) a particular product for each group.
  • Regarding a provision that allows the sitting governor to individually select the board chair without the advice and consent of the General Assembly, a best practice is that the engagement process be transparent. Interested parties want to know that the appointment reflects the right person for the job
  • It would be helpful to know the basis for why the voluntary opt-in for small businesses with more than five employees was removed. After all, forced regulation could end up costing firms so much in terms of paperwork and payroll set-up that hiring plans are put on hold.
  • It would be helpful to know how the three percent default contribution level will be tracked so that legislators will know whether to seek an increase later on. It’s a low number, especially given the math for what can be done privately. Suppose a person makes $50,000 per year in wages. The three percent deduction translates into $1,500. In 2016, the IRA contribution limit for someone younger than fifty years is $5,500. Should an individual decide to allocate the maximum, participation in the state program will logically require that the individual go elsewhere to invest the additional $4,000. Why doesn’t that individual simply invest the full $5,500 with one reputable organization? I assume the counter argument is that an individual who would not max the annual IRA limit needs a nudge in the form of the state program.

As I wrote in "State Retirement Arrangements for Small Business Employees," there are multiple state endeavors and one would need to examine the details of each one to assess economic impact and pension governance implications. Questions about federal programs exist as well. Putting aside dire long-term projections about the U.S. Social Security Trust Fund, absent reforms, several critics are unhappy with what they see as a fiduciary gap for anyone enrolled in the myRA program. By way of background, there are no fees to the individual enrollee. This is good but the guaranteed return is low because it is tied to federal debt security yields. For June 2016, the number is 1.875 percent APR. There is a lifetime maximum of $15,000 for eligible persons. A person’s employer must agree to facilitate automatic deductions which means you must be employed.

One attorney I called today said he did not think there is a fiduciary in place for this federal product. Chris Carosa, editor of Fiduciary News, has another take. In "Does "myRA breach fiduciary duty?" he lays out reasons why he thinks the myRA product is "blatantly ill-suited for retirement savers." He decries the "oozing irony" of political leaders who want the Fiduciary Rule applied to others but not to themselves, adding there is no diversification potential and the selling firm (i.e. the U.S. Treasury) is conflicted by distributing its own product. Another retirement industry professional wants to know "What fiduciary would MANDATE that a twenty-five year old invest his or her retirement assets in a short to intermediate term government bond fund and expect to avoid liability?

You get the picture. We need to understand where the fiduciary gaps exist and then strive to close them as quickly and efficaciously as possible.

After posting "Public-Private Retirement Plans and Possible Fiduciary Gaps," a senior legal expert kindly informed me that Connecticut’s legislation draws extensively from U.S. federal pension law. (ERISA does not directly apply to most government plans and the U.S. Department of Labor has proposed a safe harbor that would exempt states from being tagged as ERISA fiduciaries.) Interestingly, a word search for "fiduciary" in the Public Act No. 16-29 document comes up empty. Specifically, as laid out in Section 6, entitled "Board Duty To Act With Prudence And In Interest of Participants," the Connecticut Retirement Security Authority board of directors are to act with the "care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims" and solely "in the interests of the program’s participants and beneficiaries."

Regarding legal redress, my understanding is that individuals who allow their employers to deduct three percent of their taxable wages to be placed in an "age-appropriate target date fund" or similarly allowed investment will not have the right to sue individual members of the Connecticut Retirement Security Authority Board nor will they have the right to sue the State of Connecticut. They will have to rely on authorized directors and the Attorney General to properly oversee selected service providers and take corrective action to improve things going forward. However, even if participants can demonstrate economic harm, they would not be able to recover past damages.

Programs offered by other states vary. One would have to research dozens of legal documents to compare and contrast governance, investment opportunities and conflict of interest avoidance mechanisms. Interested parties can visit the Pension Rights Center’s State-based retirement plans for the private sector or the AARP’s State Retirement Savings Resource Center. I am not sure how often these websites are updated.

I remain skeptical and am not alone. Michael Barry, president of the Plan Advisory Services Group, explains his reservations in "Are State Plans the Answer?" (Plan Sponsor, November 2015). Paul Schott Stevens, president and CEO of the Investment Company Institute, gives a thumbs up to private initiatives such as expanding multiple employer plans or MEPs to include smaller companies. Another way forward would be to simplify 401(k) plan regulations to encourage employers to better help their workforce save for retirement. See "State-Run Retirement? Better to Go Private" (Wall Street Journal, February 7, 2016).

My lack of enthusiasm for these state-run programs has more to do with philosophy and a desire to encourage economic growth. Here is some food for thought.

  • Small businesses around the world are drowning in a sea of regulations. According to an article in Small Business Trends, there is an inverse relationship between company formations and the number of pages in the Federal Register. These "little engines that could" create jobs are not leaving the train station, discouraged by too many rules.
  • As any free market economist can handily demonstrate, unintended consequences often occur, resulting in added expense and unwelcome behavior. Instead of spending X hours per month on growing sales and profit, a small business owner that is obliged to complete paperwork may now forego hiring new employees or cut back on existing perks.
  • Some of the states that are setting up retirement programs for private company workers have a poor track record as evidenced by underfunded pension plans for municipal staff.
  • Unless one is convinced that small company employees are unable or unlikely to set up an IRA on their own, these state-involved arrangements are not needed. CNBC reports that "Employees participating in auto enrollment tend to contribute less than people who sign up for 401(k) plans on their own, often because their employers set a low default contribution level."
  • It’s not clear to me that individuals will have a better level of consumer protection by being part of a state-run program versus setting up an IRA account directly with a reputable financial institution. So far, no one has convinced me to the contrary.

I’m all for encouraging individuals to save for the long-term but I seriously wonder why government has to be involved with every decision someone makes. Hopefully I will be proven wrong and these state programs for private company employees will succeed.

Note: I welcome insightful essays and commentaries on this and other relevant pension governance topics. If you would like to be a guest contributor, please email contact@fiduciaryleadership.com with your idea or write-up.

Hot off the press, a study from Pew Charitable Trusts ("Pew") examines retirement benefit planning by geography. Key takeaways from "A Look at Access to Employer-Based Retirement Plans in the Nation’s Metropolitan Areas" and a summary by Pew’s Director of Retirement Savings, John Scott, include the following:

  • At least four out of ten full-time employees work for private companies that do not offer a retirement plan;
  • Where one works can influence whether an individual has access to an employer-provided retirement plan;
  • Data shows that access is lowest in Florida, Texas and California; 
  • Access is typically lower for employees of small companies;
  • Workers who earn more than $100,000 per year generally have greater access to an employer-sponsored plan than individuals who earn less than $25,000; and
  • Underserved employees (in terms of access to a company-provided retirement plan) are clustered in large cities.

These insights validate what many know. Millions of people worldwide are not saving enough by far for retirement. One response (not surprisingly) is for government involvement to encourage individuals to save more. On November 16, 2015, the U.S. Department of Labor ("DOL") announced its proposed regulation to enable states to facilitate retirement plans for uncovered private sector employees without being subject to the Employee Retirement Income Security Act ("ERISA"). Read "State Savings Programs for Non-Government Employees" for details.

As the result of this suggested safe harbor (as I don’t believe the DOL regulation has been passed yet), lots of states are jumping on the retirement bandwagon. Besides the State of Washington, California and Illinois require or encourage mostly smaller employers to offer a plan or engage in getting their employees to join a state network.

Not everyone is shouting with glee. According to "Initiatives for private-sector retirement moving to states" by Hazel Bradford (Pensions & Investments, January 25, 2016), certain financial service organizations fear increased compliance costs due to a patchwork approach across fifty states. Another concern is whether participants in newly formed state programs will be adequately protected. Even if a state private-public program is run by those who have sufficient experience and knowledge, will they be held to a fiduciary standard? If not, why not? If so, how will the fiduciary standard compare with ERISA norms if ERISA does not apply? In my discussions with several persons involved in this area, they too share the concern about a fiduciary gap.

Consider the case of Connecticut. After threatening to veto the bill to create the Connecticut Retirement Security Board in mid May 2016, the Nutmeg State’s governor signed the act on May 27 with operations planned to commence in 2018. According to the original text for sHB 5591, if an employee does not "affirmatively opt in" then a "qualified" employer must enroll each employee and deduct three percent of taxable wages "up to normal IRS limits." An employee can opt out by indicating a contribution level of zero. The chairperson and other directors of the Connecticut Retirement Security Board will be selected by the governor in concert with the General Assembly. The board members must "act with care and solely in the interests of the program participants" with power given to the attorney general to "investigate violations of this requirement and to seek injunctive relief regarding violations." Board members are to have "protection from individual liability."

I will defer to attorneys to hash the legal niceties about individual state endeavors to assist private company employees. From a governance perspective, I belief strongly that private company employers, plan participants and taxpayers must have answers to critical questions such as those listed below:

  • How will board members be protected? If they are to be covered by some kind of liability insurance policy, who will pay the premiums and determine the adequacy of coverage? Will taxpayers be asked to pay anything if something goes awry and the insurance policy is insufficient?
  • Who will monitor the performance of board members to assess possible conflicts of interest?
  • Will board members be term limited?
  • Will board members be compensated and who will pay their compensation?
  • In the event of a major snafu, do participants have any redress? If so, to whom and on what basis? Litigation? Mediation? Arbitration? Other?
  • When would board members act as fiduciaries? Will their actions be evaluated on the basis of state trust law? If so, how does the state trust law compare to ERISA fiduciary duties? Weaker? Stronger? Same?
  • Would individuals have stronger protection if they transact directly with a financial service company and open up an IRA on their own?

In the aftermath of the passage of the U.S. Department of Labor Fiduciary Rule (acknowledging several legal challenges just filed), the concept of fiduciary duty is foremost on the minds of numerous industry executives and policymakers. Will public-private retirement plans receive the same scrutiny or is there a fiduciary gap? If the latter, who is on the hook in case of a problem?