Quiz 28: Fiduciary Oversight and Plan Governance


An investment policy statement means which get drafted in the portfolio manager, and a client which outlines the main rules, and regulations for the company managers. This statement contains the information related to risk tolerance, liquidity requirements, and asset allocation. The advantages and disadvantages for a company when having an investment policy document are as follows: The policy helps the company to provide a right guidance on the construction of portfolio, and management. It helps to focus on the consumer's mandate, and helps to avoid the deviations which get arise because of market conditions. It helps the company to keep focus on the clients on their main targets. It helps the company in recruiting the best investment managers. The benchmarks provide help to the company to measure the investments performance. The company can use the methods, and criteria which can be used to change an investment offering. The frequency of the investment may get reviewed on annual or quarterly basis. When the company don't have investment policy, it became difficult for them when the lawsuit takes place at the time of breach of fiduciary duty, the plan sponsor don't know how to take the decisions related to breach of duty. Hence, it create problem for them to take right decisions, and create misunderstanding between the companies employees.

Retirement plan committee means which get divided into different committees like investment committee, and an administrative committee. These committees ensure that the planned fiduciaries should fulfill their main responsibilities. The sponsor establish a formal retirement plan committee, and have responsibility related with the governance, and plan administration. The committee is not responsible for performing any administrative functions, or to handle the main communication participant relative to the plan, committee should delegate the responsibilities to right party, and ensure that right actions should be taken at right time. The main function of the retirement plan committee is to delegate the responsibilities to other parties, which includes internal corporate delegation, and delegation of particular plan functions with the external service providers like record keeper, plan trustee, investment manager, and plan consultant. The company can hire external entities in order to provide such services, hence, it is important that the retirement plan committee should clearly understand that these external service providers may or may not doing relative with the administrative plan.

An organization provides Retirement benefits to its employees the retirement benefits plans are administered by plan management committee, the plan management committee will not look into the plans performance and maintenance, to overlook the committee appoints external service providers who manage the performance and maintenance of the plan. These service providers are selected based on the various factors and they are paid Fee by the organization. Fee: The Service Provider is paid Fee by the plan sponsor for the services rendered by him; the fee to be paid should be part of the agreement entered between the plan sponsor and the external service provider. The basis of payment of Fee is also the part of the agreement. Given an organization has issues RFP and got proposals from two external service providers, both the service providers has quoted the same fee in aggregate, one service provider has quoted on fee based on flat dollar amount per participant and other service provider quoted based on percentage on assets. As the organization has two external service providers who satisfies the RFP issued by the organization. In case if the Fees is charged based on the number of participants to the scheme and paid a fixed amount per participant. The organization need to pay the fee as number of participant's increases and it cannot be negotiated as it is a fixed charge. In case if the Fees is charged based on the percentage of assets the organization can negotiate the fee and the fee paid also increases as the asset value increases these helps the organization to get the better services and increase in plan assets also. The following are the factors or organizational considerations that impact the service provider selection. The list is not exhaustive. a. Experience: The Experience possessed by the service provider in the relevant area. b. Diversification: The nature of works handled by the service provider in the industry. c. Fee: The amount and the nature of fee also impacts. d. Market Reputation: It also plays a major role in selection of the service provider. e. Customer Support: The way the organization manages the clients and resolving their queries as per the entities turnaround time. f. Compliance Management: How good compliance the entity does also matters. img

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