Yes, there is a good “F” word; and the one we’re going to talk about is extremely important to you, whether you may know it or not.
I’m referring to the word “fiduciary.” Investopedia defines it as a person or organization that owes to another the duties of good faith and trust. The highest level of duty owed by one party to another, it also involves being bound ethically to act in the other’s best interests. The LAGERS trustees and staff, among certain other service providers, are fiduciaries, bound to act in the best interests of you--the members and retirees of the system. There is no greater responsibility to be had in the pension world. The Internal Revenue Code provisions governing qualified retirement plans address this in the “exclusive benefit rule”—requiring a plan to be maintained for the exclusive best interests of participants and beneficiaries. I’d like to give you a few examples of what being a fiduciary looks like at LAGERS, and most importantly what it means for you.
FIDUCIARY: "There is no greater responsibility to be had in the pension world"
First, though, for a little more context, the term “fiduciary” can be broken down further by talking big-picture about the different duties that we as your pension plan fiduciaries have to you. We provide the following descriptions to the plan’s trustees in our initial welcome letter, provided in their comprehensive reference manual:
- Duty of loyalty: The obligation to act for the exclusive benefit of the plan participants and beneficiaries. The trustees must put the interest of all plan participants and beneficiaries above their own interest or those of any third parties. Regardless of their selection process, fiduciaries must remember they do not represent a specific constituency or interest group.
- Duty of care: The responsibility to administer the plan efficiently and properly. The duty of care includes consideration and monitoring of the financial sustainability of the plan design and funding practices.
- Duty of prudence: The obligation to act prudently in exercising power or discretion over the interests that are the subject of the fiduciary relationship. The general standard is that a trustee should act in a way that a reasonable or prudent person acts in a similar situation or in the conduct of his or her own affairs.
Believe it or not, this isn’t really that hard to do—but it is a huge responsibility. That’s not to say that every decision or action is easy, but when every decision or action is preceded by the question “what is best for the members?” you have your home base, your moral compass, your benchmark.
When your investment team here at LAGERS works diligently to research and fund different investment opportunities, they do so solely for the purpose of earning the most return possible in the portfolio, while also managing and mitigating related risks. This benefits you because whether you are already retired, or plan to work until you retire, our duty is to ensure the funds needed will be available to pay your benefits.
Your plan’s operations staff (employer reporting, benefits, member services, and others such as IT, legal, compliance) work daily to process your wages and benefit payments, educate you and your employer on benefits available, protect your personal data, and ensure legal and ethical compliance with laws and governing documents. They do so solely for the purpose of ensuring plan contributions and your current or future benefits are accurate and timely and administered ethically, legally, and as efficiently and economically as possible so as to minimize administrative costs to the system.
When your plan’s trustees, who receive the whopping pay of $0 per year, meet to make high-level, strategic decisions, as well as some decisions that affect individual members directly (such as disability retirement applicants), they do so always with the purpose of ensuring the system is funded appropriately and benefits are paid appropriately, in order to secure your current and future benefits.
On a side note, you may have heard some rumblings regarding a Fiduciary Rule affecting certain financial professionals proposed by the U.S. Department of Labor. If so, you may have wondered if the rule would apply to your LAGERS plan and those who work for and/or provide advice to the plan. Because the rule would expand duties under the Employee Retirement Income Security Act (ERISA) which does not apply to public pension plans, it would not directly affect LAGERS and its fiduciaries. In any event the future of the rule currently appears to be in question due to delays and legal challenges.
Again, first and foremost, everything we do at LAGERS is in the best interests of you--the members, retirees, and beneficiaries. Other stakeholders are important (like employers, taxpayers, etc.), but our fiduciary duty is to you.