Model Practices for Trust
identified in
The Uniform Management of Public Employee Retirement Systems Act
(UMPERSA)
and
The Uniform Prudent Investor Act (UPIA)
I.
Establishment
of Trust
a. Retirement assets are maintained as a trust. This does not include assets held in insurance contracts.
b. Trustees have exclusive authority to manage and invest trust assets.
II. Trustee Powers
a. Trustees
have legal protections that make them independent from pressures external to
execution of their fiduciary responsibilities.
b. Trustee
independence includes authority to:
i.
spend assets for
administrative purposes and determine the amount of the expenditures required.
ii.
contract for services
necessary to execute fiduciary duties, e.g., actuarial, legal, audit,
investment, custodial, etc., and retain service providers who are independent
of the plan sponsor.
iii.
make personnel and procurement
decisions (including salary levels for personnel and vendor decisions, both
independent of outside influences).
c. Trustees are authorized to delegate functions when executing fiduciary duties
d. Trustees
may deliberate in closed session if disclosure of the deliberations or
decisions jeopardizes the ability to implement a decision or to achieve
investment objectives.
III.
Fiduciary
Responsibilities
a. The
duties and responsibilities of retirement system fiduciaries (including
trustees, administrators, and those to whom fiduciary responsibilities are
delegated) are delineated. These duties derive from trust law and federal and
state pension law.
b. A prudent investor rule is established that is consistent with those established in prior case law and federal and state legislation
c. Trustees have a duty to comply with the prudent investor rule that is established
IV.
Trustee
liability
a. Trustee compliance with the prudent investor rule relieves the trustee of liability to a beneficiary with regard to the management of assets.
b. Trustees who fail to comply with the prudent investor rule may be held liable by beneficiaries
c. Any agreement that attempts to limit liability in cases of breach of duty, is void
d. A retirement system may insure itself (but not individuals) against liability in cases of breach of duty
V.
Investment
of Assets
a. Trustees
who have responsibility for making investment decisions or for providing
investment direction are required to consider the following factors when making
investment decisions:
i.
the risk/return relationship
ii. the importance of asset diversification
b. A statement of investment objectives and policies is established
c. Trustees are required to continually monitor assets
d. There are no categorical restrictions on investments
e. Investment decisions are made with an awareness of the possible improper role of investments with collateral benefits, e.g., economically targeted investments
VI.
Reviewing
compliance
a. When reviewing the performance of the trustee:
i. Compliance is determined by the facts and circumstances at the time of the decision, not in hindsight
ii. Decisions are evaluated in the context of the whole portfolio, and not in isolation
VII.
Disclosure
a. A trust administrator is required to prepare and disseminate certain information to:
i. the public
ii. the participants and beneficiaries
iii. the agency serving as an accessible repository
b. The summary plan information prepared by the trust administrator must be comprehensive and understandable to participants, and inform them of their rights and obligations under the system
c. Disclosure of actuarial and financial data must include financial statements and notes in compliance with generally accepted accounting principles, especially GASB 25 and Actuarial Standard Practice number 4.
d. The annual report must provide fair notice of the current status of the system.
VIII.
Enforcement
a. An employer, participant, beneficiary, or fiduciary may pursue legal action to address violations of the rules governing the system.
b. A statute of limitations is established on legal actions.
IX.
Assignment
of benefits
a. Retirement benefits may not be assigned to others and are exempt from creditors except when specifically allowed by the state.
In conclusion:
Ø Best practices in trust independence will provide trustees with the resources and flexibility needed to properly fulfill their fiduciary responsibility; and,
Ø Best practices in board governance will result in:
§ Clear assignments of roles and responsibilities that capitalize on the strengths of the various players
§ Prudent delegation
§ Proper oversight and monitoring
§ Alignment of interests