Fiduciary Investment Reminders

All nine trustees on a relief association’s board of trustees are fiduciaries. State law defines activities of a fiduciary, which include the investment of plan assets and the selection of financial institutions and investment products.

When presented with investment proposals, trustees should keep in mind the old adage: “If it sounds too good to be true, it probably is.” Relief association trustees should ask questions of investment professionals and monitor investment performance.

As fiduciaries, each trustee on a relief association’s board owes a duty to the members that investments are made in accordance with state law and with the plan documents (i.e., bylaws, articles of incorporation, and investment policy). Hiring a broker or investment advisor does not relieve a relief association’s board members of their fiduciary duties and responsibilities.

State law requires that fiduciaries act in good faith and exercise the degree of judgment and care, under the circumstances then prevailing, that persons of prudence, discretion, and intelligence would exercise in the management of their own affairs, not for speculation, considering the probable safety of the plan capital as well as the probable investment return to be derived from the assets.

In addition to having a fiduciary duty to the relief association members, trustees also owe a fiduciary duty to the taxpayers, who help finance the plan, and to the State of Minnesota.

When markets are volatile some investors can be more easily persuaded to make choices that are not in the investor’s best interest. “Churning”, the practice of excessive trading by a broker seeking to maximize commissions regardless of the client’s best interest, may also be harder to detect when markets are fluctuating.

Published last in the April 2021 Pension Newsletter