As we prepare to celebrate the Declaration that marks the birth of this nation, it seems a good time to reflect on some lessons from that experience that hold true even today.
Inertia is a powerful force.
By the time the Second Continental Congress convened, the “shot heard
round the world” had already been fired at Lexington, but many of the
representatives in Philadelphia still held out hope for some kind of
peaceful reconciliation. Little wonder that, even in the midst of
hostilities, there was a strong inclination on the part of several key
individuals to put things back the way they had been, to patch them
over, rather than to take on the world’s most accomplished military
As human beings we are largely predisposed to leave things the way
they are, rather than making abrupt and dramatic change. Whether this
“inertia” comes from a fear of the unknown, a certain laziness about the
extra work that might be required, or a sense that advocating change
suggests an admission that there was something “wrong” before, it seems
fair to say that plan sponsors are, generally speaking, and in the
absence of a compelling reason for change, inclined to rationalize
Little wonder that we often see new fund options added, while old and
unsatisfactory funds linger on the plan menu, a general hesitation to
undertake an evaluation of long-standing providers in the absence of
severe service issues, and reluctance to adopt potentially disruptive
(and, admittedly, often expensive) plan features like automatic
enrollment or deferral acceleration.
While many of the delegates to the Constitutional Convention were
restricted by the entities that appointed them in terms of how they
could vote on the issues presented, plan fiduciaries are bound by a
higher obligation – that their decisions be made solely in the best
interests of plan participants and their beneficiaries – regardless of
any other organizational or personal obligations they may have outside
their committee role.
Selection of committee members is crucial.
The Second Continental Congress was comprised of representatives from
what amounted to 13 different governments, with delegates selected by
processes ranging from extralegal conventions, ad hoc committees, to
elected assemblies – with varying degrees of voting authority granted to
them, to boot. Needless to say, that made reaching consensus even more
complicated than under “ordinary” circumstances.
Today the process of putting together an investment or plan committee
runs the gamut – everything from simply extrapolating roles from an
organization chart to a random assortment of individuals to a thoughtful
consideration of individuals and their qualifications to act as a plan
fiduciary. But if you want a good result, you need to have the right
individuals – and, certainly in the case of ERISA fiduciaries, if those
individuals lack the requisite knowledge on a particular issue, they
need to access that expertise from individuals who do.
Know that there are risks.
The men that gathered in Philadelphia that summer of 1776 came from
all walks of life, but it seems fair to say that most had something to
lose by signing on to a declaration of independence. True, many were
merchants (some wealthy, including President of Congress John Hancock),
and perhaps they could see a day when their actions would accrue to
their economic benefit. Still, they could hardly have undertaken that
declaration of independence without a very real concern that in so doing
they might well have signed their death warrants. As Ben Franklin is
said to have commented just before signing the Declaration, “We must,
indeed, all hang together, or most assuredly we shall all hang
It’s not quite that serious for ERISA plan fiduciaries. However,
there is the matter of personal liability – not only for your actions,
but for those of your fellow fiduciaries – and thus, you might be
required to restore any losses to the plan or to restore any profits
gained through improper use of plan assets. So, it’s a good idea not
only to know who your co-fiduciaries are – but to keep an eye on what
they do, and are permitted to do.
It’s important to put it in writing.
While the Declaration of Independence technically had no legal
effect, with the possible exception of the Gettysburg Address (which was
heavily inspired by the former), its impact not only on the
establishment of the United States, but as a social and political
inspiration for many throughout the world is unquestioned, and perhaps
unprecedented. Putting that declaration – and the sentiments expressed –
in writing gave it a force and influence far beyond its original
Plan fiduciaries are sometimes cautioned (often by legal counsel)
about committing to writing certain decisions, notably an investment
policy statement. In fairness, the law does not require one, though
ERISA basically anticipates that plan fiduciaries will conduct
themselves as though they had one in place. And, generally speaking,
plan sponsors (and the advisors they work with) find it easier to
conduct the plan’s investment business in accordance with a set of
established, prudent standards if those standards are in writing –
rather than being crafted at a point in time when you are desperately
trying to make sense of the markets. That said, and in the defense of
caution, if there’s something worse than not having an IPS, it’s having
an IPS that isn’t followed.
There is an old ERISA adage that says, “Prudence is process.”
However, an updated version of that adage might be “prudence is process –
but only if you can prove it.” To that end, a written record of the
activities of plan committee(s) is an essential ingredient in validating
not only the results, but also the thought process behind those
deliberations. More significantly, those minutes can provide committee
members – both past and future – with a sense of the environment at the
time decisions were made, the alternatives presented and the rationale
offered for each, as well as what those decisions were.
Those might not serve to inspire future generations – but they can be
an invaluable tool in reassessing those decisions at the appropriate
time(s) in the future and making adjustments as warranted – properly
documented, of course.
Actions can speak louder than words.
As dramatic and inspiring as the words of the Declaration of
Independence surely were (and are), if they never got beyond the
document in which they appeared, it’s unlikely we’d be talking about
them today. Indeed, it’s likely that, without the actions committed to
in that Declaration, their signatures on the document would have only
ensured that they wound up on the gallows.
Anyone who has ever had a grand idea shackled to the deliberations of
a moribund committee, or who has had to kowtow to the sensibilities of a
recalcitrant compliance department, can empathize with the process that
produced the Declaration of Independence we’ll commemorate this week.
While plan committee meetings may sometimes seem like little more
than obligatory (and tedious) reviews of arcane information, it’s worth
remembering that those decisions affect people’s lives – and,
ultimately, their financial independence.
- Nevin E. Adams, JD