SCOPE:
The fiduciary audit for Corp A had a very broad scope including both the defined benefit plan and the defined contribution plan. The issues we addressed related to legal (ERISA) and policy compliance, as well as compliance with sound internal control principles.
For both plans, we reviewed all aspects of the investment management including policies and processes used to select investment options, managers, and methods used to monitor compliance with contracts and other mandates. In addition, we evaluated the governance documents or lack thereof, along with the mechanisms used to monitor compliance by the named fiduciaries serving on the committees.
For the defined contribution plan, we also evaluated the third-party administrators used. For the defined benefit plan, we examined policies and practices related to selecting and monitoring consultants, custodian banks, brokers, traders, and other service providers.
APPROACH:
In approaching this assignment, we gathered information from existing documents and then interviewed the staff and outside service providers including actuaries, investment consultants, managers, custodian banks, outside counsel, and specialty consultants hired to review trading efficiency to ascertain actual practices.
We analyzed the existing policies, position descriptions, reports, and other governing documents for completeness and clarity and compared them to what we consider to be best practices. We made note of any differences between the client documents and best practices and we rewrote some policies for the client. Our work also involved checking methods used by Corp A to ensure policy and legal (ERISA) compliance.
RECOMMENDATIONS:
We made approximately 100 recommendations, each supported by our research and rationale. We prioritized them into categories of relative importance, highlighting five recommendations that were of highest priority.
Our final report also included “considerations,” which were alternative ways of doing things. These considerations were basically “food for thought” and suggestions for the fiduciaries.
OUTCOMES:
Corp A immediately adopted 41 of the 100 recommendations and staff has indicated that they will adopt nearly all of the others very soon. They were pleased with the way we worked with them—remaining independent but also closely sharing our observations throughout the entire process and giving them ample opportunity to respond to our conclusions.
The immediate outcome of our fiduciary and governance consulting was that Corp A totally revamped its policies, procedures, and structure for the defined contribution plan. The secondary outcome was the reconsideration of the governance of the defined benefit plan.
Not only were fiduciary risks mitigated, but the plans are now being managed more professionally.