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March 5, 2019

Kevin Karpuk CFA

“Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by the fiduciary ties.” - Justice Benjamin Cardozo
According to the September 2017 Department of Labor publication entitled “Meeting Your Fiduciary Responsibilities,” ERISA fiduciaries have five duties to the participants of a retirement plan and their beneficiaries. Decisionmakers also bear personal liability for failing to fulfill these. The responsibilities are:
 
  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Carrying out their duties prudently;
  • Following the plan documents (unless they are inconsistent with ERISA);
  • Diversifying plan investments; and
  • Paying only reasonable plan expenses.
     
The defined contribution market has matured in the last two decades. There is now regular fee benchmarking to measure the reasonableness of plan costs, although there are still holes in the ability to measure value received versus just fees incurred. Fiduciary training for those responsible for the plans is often included in the services provided by third parties. Documentation surrounding adherence to plan documents has improved and is often memorialized in meeting minutes. Even diversification of plan investments, which had grown too cumbersome for the average plan participant, has returned to manageable levels with target date funds gaining popularity.

Nevertheless, the issues surrounding fulfilment of fiduciary duty are not always clear-cut. The first point outlined above would, on its face, seem self-explanatory, but it can be one of the trickiest to navigate. Fiduciary lapses do not require malice for consequences to be felt.



One of the more common lapses in fiduciary responsibility occurs when fiduciaries wear several hats within an organization. Imagine you are the CFO of a company, and a bank offers a lower interest rate to lend you money if you also allow them to manage your retirement plan. This is not necessarily a breach of your duty of loyalty, but it could be perceived as using participants’ assets to supplement the cost of debt to the company, which would be improper. Bundling services to receive economies of scale is as old as commerce itself; however, fiduciaries have heightened requirements to which they must adhere.

Every fiduciary, regardless of which regulatory regime they serve under, must always put their beneficiaries first. When in doubt, they should make the best decision they can with the information available to them and disclose any potential conflicts of interest. A good strategy is also to partner with experienced co-fiduciaries who can help guide you.

To close on a personal note, our colleague, Matt Zym, will be leaving Cornerstone today to pursue a lifelong dream of hiking the entire length of the Appalachian Trail. We wish him all the best and look forward to hearing about his adventures. Matt, remember, “No Pain, No Rain, No Maine.”
 
*https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf

Kevin Karpuk, CFA Chief Investment Officer

Kevin is Cornerstone’s Chief Investment Officer and is involved with the firm’s Investment Policy and Strategic Planning committees. Kevin joined the company in 2000 after graduating from Lehigh University with a B.S. and M.S. in Economics and earned his CFA charter in 2005. Kevin and his wife Kat support many charitable causes and have established a donor advised fund to propagate their philanthropic interests. They live in Bethlehem with their two cats: Zola and Charlyne, enjoy woodworking, gardening, reading and travel. Kevin is the proud uncle to many nieces and nephews and loves spending time with and spoiling them.

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This material is prepared by Cornerstone Advisors Asset Management, LLC (“Cornerstone”) and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the published date indicated on the article and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cornerstone to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cornerstone, its officers, employees or agents. This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

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