The nation’s economic recession puts pressure on construction contractors, sometimes causing conflicts for the trustees of the Taft-Hartley funds that administer Laborers’ health and welfare benefits.
In times like these, the two-hat dilemma intensifies for trustees. Trustees wear two hats. On the one hand, they serve precisely because they’ve been chosen to represent labor or management interests in the administration of the fund. On the other hand, their duty is the overall management of the fund in the participants’ best interest. Facing the same set of facts, a management trustee and a labor trustee may respond quite differently. How do all trustees ensure that they exercise appropriate fiduciary responsibility?
Take this example. Until early last year, a large beach area recreation market thrived on the construction of new homes, spurred by the tax deduction for second home mortgage interest. With home building booming, retail growth mushroomed, and the state issued ever-larger contracts for road and bridge construction. Then, the recession hit with full force. Recreational homeowners sought to dump their second mortgage payments, and the housing market collapsed. Retail followed suit. The building boom crashed, and the state stopped all contracts in the pipeline. Suddenly, contractors were in a squeeze. A few companies went out of business, and one major company fell behind in its contributions to the local health and welfare fund – contributions required by the collective bargaining agreement.
What should the trustees do?
The instincts of trustees may differ, depending on their circumstances and their relationships to the company in question. For instance, a union trustee, in order to avoid lay-offs and retain union jobs, might want to give the company time to get itself together. A management trustee who happens to work for the company might share that perspective. On the other hand, a management trustee from a competing company might not feel so sympathetic. And questioning the company’s financial priorities, a different union trustee might favor taking men off the job to force the delinquent to fulfill its obligations to the fund.
Each perspective has validity – and no trustee can avoid thinking about the impacts of decisions on others with whom he or she has a personal connection or, perhaps, even harbors distrust. However, trustees cannot allow their “two-hat” perspectives to cloud their ultimate decision-making. In the end, a trustee’s fiduciary responsibility is only to the best interest of the plan’s beneficiaries.
According to the Supreme Court, “[A] trustee bears an unwavering duty of complete loyalty to the beneficiary of the trust, to the exclusion of interests of other parties.”
It is not only hard times that create potential “two-hat” issues. Conflicting situations can arise under a variety of circumstances. For instance, if a plan is fully funded, labor trustees may want increased benefits while management trustees may want a contribution holiday. Or, personal relations may come into play, as when a long-time trustee has become disinterested and ineffective, and one side wants him removed while the other wants him to stay on until retirement.
The key to sound trustee decision-making is keeping the best interests of the plan beneficiaries always in mind. Trustees should consistently ask how a decision will impact the participants and raise open, honest discussion of this point during meetings. Trustees should also educate themselves on the issues, read meeting materials in advance and come prepared to ask questions of the plan’s professionals, its consultants and the other trustees. Further, to avoid ill-considered decisions, trustees should develop guidance and policy documents – for instance, a delinquency collection policy – in advance so that proper procedures will be clearly defined when a crisis emerges.
Conflicting passions are part of human nature, but trustees must try to hold them at bay. The guiding compass is the plan’s participants: know their interests and act accordingly.
This is another article of the LHSFNA’s trustee education series. We welcome your feedback and questions. Email us at firstname.lastname@example.org.