Mercer Tool Helps Spot Fiduciary Danger Zones

A Mercer HR news release said the research covered more than 200 plans and extensive governance review of plan sponsors. The result: Mercer has developed a new diagnostic approach to assess risk factors.

Mercer said that the offering, Mercer Fiduciary Management Diagnostic – Mercer Fiduciary MD – is designed to identify and address gaps in high-risk areas. It includes a thorough review of retirement plan operations, an analysis of investment options, education sessions for fiduciaries, and advice on how to keep plans well-governed and in compliance.

“A failure to identify and address the risk factors associated with retirement plans can translate into financial exposure for any company,” says Betsy Faber, a Los Angeles-based principal in Mercer’s retirement consulting business. “Enron and WorldCom created a mistaken impression that only blatant or intentional fraud can get a plan fiduciary in trouble. In reality, it’s the more common activities of retirement plan sponsors and administrators that can result in liability.”

The Mercer study found a number of instances when retirement plan oversight committees were operating without a current charter and other instances of inadequate fiduciary orientation and education.

According to Mercer, there are also a number of risks in the general area of fiduciary responsibility. The study found plan sponsors often are uncertain about the roles they are playing. “Plan fiduciaries ought to wear their ‘fiduciary hat’ for things like plan administration and managing plan assets and wear their ’employer hat’ for plan design decisions,” Faber said. “They could be found personally liable for decisions that are later discovered not to be in the plan participants’ best interest.”

Governance structure and process problems also crop up when there is a failure to both define the role of the Board and diligently monitor fiduciaries and service providers, Mercer said. Mercer found that the leading fiduciary risks in the investment oversight area include weak or obsolete investment policy statements; a lack of effective monitoring of plan investment options; and poor processes for selecting, retaining, and terminating funds.

Mercer also found that, although company stock in retirement plans is an attractive option to both plan sponsors and many participants, it can lead to conflicts for corporate officers who possess material non-public information about the organization.

According to the Mercer study, operational compliance problems can be associated with some otherwise routine tasks: eligibility requirements that are applied incorrectly, vesting service calculated incorrectly, required notices not given timely or properly, and failure to deposit employee contributions on a timely basis.