Speaking at the 49th CEO Summit of the Chief Executive Leadership Institute at the Yale School of Management, U.S. Secretary of Labor Elaine L. Chao had some strong words for CEOs regarding the topic of pension plan governance:
1. “With trillions of dollars in assets, our nation’s retirement plans are major players in the economy. Pension plans are significant institutional investors in the Fortune 500. Out of the $15.5 trillion in corporate stock currently outstanding, ERISA regulated pension plans hold $1.9 trillion or about 12 percent. State and local pension plans hold another $1.3 trillion. This means about 20 percent of all corporate stock is held by pension plans. The health of our nation’s pension assets and our nation’s private economy, therefore, is deeply intertwined.”
2. “In the course of recovering workers’ pension assets, we have seen a clear lack of understanding or appreciation of the fiduciary’s responsibilities under ERISA. Today, a CEO is much more than the manager of an organization. He or she is a steward of the vitality of our economy and the public trust. Executive decisions need to be made not only in the short-term interest of the organization, but with an eye to the long-term interest of the economy and the preserving the benefits of the free enterprise system. That’s why I am here today to discuss the need for corporate and organizational CEOs to be more aware and vigilant about the responsibilities of being pension fiduciaries and to review the steps that should be taken to ensure that retirement promises made to workers are kept.”
3. “To begin with, it is important for CEOs to be aware of who are the fiduciaries of their employees’ pension plans. Under ERISA, each plan must have a named fiduciary, designated in the plan documents. In many cases, the named fiduciary is the CEO or the Board of Directors. But it is permissible, in fact common, for the CEO or Board to designate someone else. Often, an administrative committee serves as the fiduciary and manages the operation of the plan. It is important to note, however, that designating another person or entity to manage a plan does not relieve the CEO—or other named fiduciary—of responsibility or liability. The CEO or designating official has a responsibility to monitor the performance of the fiduciary of the plan. That means reading their reports, holding regular meetings regarding the performance of the plan, and providing the designated plan managers with necessary information. It also means updating plan documents and taking action if the designated fiduciary makes imprudent decisions.”
4. “Updating plan documents may sound pretty obvious. But you would be surprised how many times the Department has audited plans and found inconsistent provisions or the failure to make amendments that reflect corporate changes. This is not just a clerical problem. Under the law, the plan must be administered in accordance with its terms. If its terms are inconsistent or unclear, a whole host of legal problems can occur.”
5. “. . . [I]t is more important than ever for CEOs to be aware of and pay attention to pension plan governance. The time has come to move the focus of pension plan governance out of the human resources department and beyond compliance with tax laws. The executive level suite needs to focus on pension plan governance itself, especially the responsibility and liability of pension plan fiduciaries.“