Documents for Getting Started as a New Trustee
As a new trustee you need to:
1. Assess the financial health of the fund
2. Determine the fund’s most pressing issues
3. Begin to understand the dynamic of fund operations
New trustees shouldn’t be hesitant to scrutinize documents carefully and question fund operations. One new trustee did just that and what he found probably saved the fund from BIG trouble with the Department of Labor (DOL) and the Internal Revenue Service (IRS) during their next audit.
This new trustee had some questions about what he perceived as minor discrepancies in the fund’s financials and conducted what could best be described as a mini-audit with the plan administrator. His audit turned up several questionable transactions and procedures that enabled those transactions to occur. Some were small problems for the fund, but others were significant. All were brought to the attention of the board and corrective action was taken. While probably considered a pain in someone’s rear at the time, that fund is better off because of his actions.
The same could be true for your fund. So don’t be shy!
The following documents will help you in this quest:
Minutes – 12 months. Reviewing minutes from at least one year of trust meetings should enable the new trustee to identify the “hot” issues for this particular fund during that year, as those topics are likely to arise repeatedly. The minutes should also enable the trustee to see how this fund operates and how decisions are made. In addition, minutes may help impart some of the institutional knowledge a new trustee is missing. Financial statements – last 3 years.
Trustees have an obligation to diversify plan assets and to ensure that only reasonable and appropriate expenses are paid. There is no better place to begin meeting that obligation than to review the fund’s financial statements. Trustees should scrutinize the financial statements carefully looking for any abnormalities or improprieties (whether intentional or not). In addition, trustees should not hesitate to ask for supporting documents underlying the financial statement or to question the appropriateness of any given transaction.
Any written reports provided by plan service providers in the last 12 months. While ERISA allows, and in fact expects, that trustee will hire service providers to provide the specialized knowledge necessary to operate the fund, trustees continue to have the obligation to monitor those service providers’ performance. The best way to do that is by familiarizing yourself with those service providers’ recent reports when you join the fund. New trustees may also wish to meet with the service providers to go over those reports and ask any questions they may have about the reports or provider services. This will enable the trustee to place in context the service providers’ new reports as well as ask pertinent questions of the service providers at the upcoming trust meetings.
List of delinquent employers – last 12 months. If you are very lucky, the list will be short and without any large delinquencies. For everyone else, you might notice a pattern of habitually late payments or a particularly large delinquency may come to your attention. If so, you should question how the fund is addressing these delinquencies and plans to deter similar ones in the future. Over the last several years the DOL has increased scrutiny of delinquency collections. Best practices dictate to ask the question (and act) before the DOL gets a chance. If nothing else, the delinquency list will often give the trustee a better idea of the financial health of the plan.
Copies of lawsuits in which the fund has been involved within the last 5 years. Okay, we aren’t talking about the run-of –the-mill collection action here or the QDRO* cases that a pension fund may find itself routinely joined to under state laws. Of course, those items are important but they are likely too numerous to make review practicable. What you really want to know as a trustee are allegations of breach of fiduciary duties, disputes with service providers and benefit litigation – all of which hopefully are not numerous. These types of litigation are the most likely to affect the operations of the fund and most trustees would benefit from understanding how they arose and were resolved.
*Qualified Domestic Relations Order (QDRO)