Employers Take Issue with Joint Trustee Boards

March 27, 2002 (PLANSPONSOR.com) - Of the many provisions in Senator Edward Kennedy's pension reform bill, the one that seems to upset employers the most is the initiative to allow employees to serve on the retirement plan board of trustees.

The Protecting America’s Pensions Act of 2002 contains the provision that calls for the creation of a joint board of trustees for 401(k) plans with more than 100 participants. Also, the legislation mandates that these trustee boards maintain an equal number of employer and employee representatives.

Such legislation is not a novel idea. Several years ago, Representative Peter Visclosky, (D-IN) introduced a similar proposal but it was met with opposition and died in the House of Representatives.


This time around, business groups oppose the piece of the legislation because they fear it will complicate the 401(k) plan process.

“This will probably have a negative impact on plan formation and will most likely have the biggest effect on small plan sponsors – simply because small employers would not prefer to spend a lot of time on this,” said Dallas Salisbury, president of the Employee Benefits Research Institute. “The additional administrative burdens of having a joint board could conceivably cause some employers not to want a [401(k)] plan.”

However, Damon Silver, general counsel at the AFL-CIO disagrees: “The only administrative burden small companies would encounter would be picking people from its small pool of employees.”

James Delaplane, vice president for retirement policy at the American Benefits Council, said that elections themselves could be sore points with employers. “Passing this would mean that a complex election regime would need to be carried out in thousands of workplaces across the county,” he said. “That would be more elections for plan trustees than unions do today annually. And, a lot of employers might see this as a stepping stone to unionization.”

Delaplane continued that joint boards could potentially distort ordinary fiduciary duties. “In some sense, a joint trusteeship is a breeding ground for conflicts; employee representatives will be elected by employees and will be seen as advocates of employee causes. This can turn fiduciary decisions into adversarial and politicized issues.”


Meanwhile, Brian Graff, president of the American Society of Pension Actuaries, (ASPA) said the provision itself is superfluous. “There’s no opportunity for management to have any gain if there isn’t company stock involved,” he said. “But this provision applies to every plan in the universe. If this [provision] were limited to a situation where a company had employer stock that would be different.”

Advocates of the provision noted that in Europe, though pension boards are slightly different from those in the United States, they tend to incorporate employees into their trustee boards.

“We think the provision is a good idea,” said Karen Friedman, director of policy strategy at the Pension Rights Center. “It would have more protections for employees and it would be a way of protecting against those gross conflicts of interests that resulted in Enron.”

Their Money

Friedman also noted that another solution would be to appoint an independent fiduciary to trustee boards.

Opponents of the provision argued that your average 401(k) plan participant barely knows what to do with his or her own plan so would not necessarily be capable of helping to make investment choices for an entire company. Friedman thinks this idea is bogus.

“All [trustee boards] basically do is pick funds,” she said. “They do not invest for people and make other decisions. Is there some secret that only employers can be educated about investments? Employees should have a righ

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