Keep Audit Trail To Head Off Accusations of Neglecting Fiduciary Duty

27 September 2012 (PLANSPONSOREurope.com) –UK employers, considering limiting the number of choices to members of their defined contribution plans, should ensure they have made the decision on the back of properly regulated advice.

As the first raft of employers auto enrol staff onto defined contribution plans under new rules effective from Monday, Anthony Arter partner at Eversheds told PLANSPONSOR Europe employees could mount legal challenges over whether limiting their investment choices was neglecting employers’ fiduciary duty to provide the best possible outcomes.

He added evidence of properly sought professional advice was the best defence against this.
He also recommended constantly monitoring said investments and having an auditing team in place to show employers have taken the best advice.

At a National Association of Pension Funds (NAPF) event in London yesterday Lesley Williams, group pensions director at hospitality firm Whitbread, told delegates 99% of members of its DC pension plan are in its default fund.
Williams explained the Trust-based scheme had originally offered members a number of choices but 97% still opted for the default fund.

Following a misprint in pension documents which accidentally moved the choices around, Whitbread discovered members had suddenly become more adventurous in their investment choices proving they had little understanding of the choices they were making.

Williams told PLANSPONSOR Europe she agreed with Arter’s counsel.

She said the company has sought the necessary legal advice to make them confident in the approach they have chosen but added that should the firm’s workforce become more sophisticated in their investment knowledge the firm was open to changing the options of the plan.

Williams also added that Whitbread was monitoring target date funds or life-cycle funds as a possible DC solution closely.

“I am a fan of target date funds. At the moment we have taken a decision that won’t work for Whitbread but we are watching it very closely,” she said.

“It is an area that is developing very quickly and it is something we want to stay close and will move with as things change.”

PLANSPONSOREurope Staff
editors@plansponsoreurope.com