This is the third article of the LHSFNA’s trustee education series: It’s a BIG Job. The others were Legislative History Reveals Basis of A Trustee’s Duty and Fund Trustees Have ‘Fiduciary Responsibility’. We welcome your feedback and questions. Email firstname.lastname@example.org.
As a health and welfare fund’s named fiduciary, the trustees are responsible for the control and management of all the fund’s operations. However, very few trustees have the expertise and experience necessary to perform all fund duties. For this, firms or individuals with legal, actuarial, administrative, accounting and investment management skills must be retained.
Trustees can delegate their duties to these professionals, but they do not delegate their fiduciary responsibility. As a result, they must manage these relationships carefully or they may become liable for any mismanagement by the professional staff or consultants. Trustees should consult with their attorney as they proceed with delegation decisions.
The Employee Retirement Income Security Act of 1974 (ERISA), which governs the management of Taft-Hartley Funds such as LIUNA’s health and welfare funds, recognizes that trustees must delegate responsibilities to professionals. Indeed, a primary responsibility of a trustee is the appropriate delegation of responsibility. If this is handled correctly, trustees will not be liable for the mistakes or misappropriations of the professionals they retain.
To delegate correctly, trustees must (a) delegate within the extent authorized by the plan document, (b) follow procedures specified in the plan document and (c) monitor implementation and retention.
Though responsibilities are typically delegated to professionals, they sometimes are allocated to individual trustees or committees of the Board. In either case, the trustees must always exercise prudence in their initial selection and in any continuing delegations, and they must always ensure that they are acting solely in the interest of fund participants and beneficiaries. Should they fail in either regard, the delegation fails and responsibility remains with the trustees.
Put it in Writing
Aside from being sure to act within the framework of the plan document, the key for trustees is documenting their process and decisions with regard to delegation. Often, selection of professional individuals or organizations requires a formal competitive bidding process. Whether competitive or not, trustees must keep records of the firms and individuals solicited, the experience of the potential candidates and the basis upon which the selection decision was made. Written records must also be maintained of how the incumbent is monitored and the basis of any decision to retain services at the expiration of the initial contract.
Trustees also should be careful to check that all obligations they wish to delegate are actually assigned to specific parties and that each is performing. Any gaps in delegation remain the responsibility of the trustees.
Prudence in monitoring fund professionals and vendors requires trustees to periodically review their performance and take appropriate action if shortcomings are evident. Trustees also have a duty to inform so that hired professionals have whatever knowledge is necessary to perform duties on a particular fund’s behalf.
While individual trustees often lack the specialized knowledge to perform key tasks of fund management and administration, their responsibility is the selection and oversight of professionals who have the necessary skills. When this duty is properly carried out, the fund is well-monitored and the trustees fulfill their fiduciary responsibility.