By Frank ANDERSON
We continue our discussions on how a pension fund trustee can be effective. Part II also focuses on other key principles for becoming an effective trustee.
Learn to take advice but ask questions
In administering pension schemes, the law mandates trustees to appoint pension fund managers, pension fund custodians, auditors, actuaries and others to assist in administering the schemes.
Act 766 does not require trustees to be investment experts, so they rely on the pension fund manager to provide them with expert advice on the funds’ investment.
The pension fund custodian keeps the scheme’s funds and undertakes investment placement instructions from the trustee, while the auditor is required to audit the trustee and scheme’s books to ensure accountability and transparency.
The actuary provides advice on scheme funding, the scheme’s future status and its ability to meet liabilities.
You will certainly meet them and other consultants around the board table when considering its performance and making certain decisions about the scheme.
Since they are professionals and experts, it seems natural that, as a trustee, you should turn to them and generally defer to their suggestions; and by law, you are encouraged to rely on their expert advice before making decisions.
However, you should not be a passive trustee or docile in your engagements with advisers, because not all advice is in the scheme’s best interest. Do not just accept what they say at face value.
You should not be afraid to challenge their advice. You must be constantly inquisitive and demand an explanation for anything that you do not understand.
Sometimes you will find situations where it seems they are less concerned about giving you good advice than they are in keeping relations smooth all round. Considering that they are a group of paid professionals, they try to avoid conflict wherever possible because conflict may make them lose their jobs.
The point is that asking questions, including tough ones, of your advisers is part of your duties as a trustee. Do not allow yourselves to be bullied with terminology and convoluted data in becoming a ‘bobble-headed’ trustee.
It is legally safe to rely on their advice; but if you rely on it totally and never question it, then you are not being an effective trustee.
Remember, although you are allowed to delegate duties to a third party, you still have overall responsibility for any actions taken; therefore, you should never lose sight of the fact that the buck stops with you. Probe further and get the right thing done.
Be ethical in your dealings
Considering the fact trustees manage pension schemes which hold huge funds that serve as a source of retirement income for millions of workers, it is imperative for your actions and inactions to align with fundamental ethical principles of honesty, integrity, independence, fairness, openness and competence in order to protect the funds in members’ interest .
Ethical behaviour is foundational for a trustee to be effective. As the board of trustees, you must have your own code of conduct that will guide you in your major decisions and activities to prevent conflict of interest and unethical behaviour.
As per your fiduciary duties, you are expected to act in good faith with prudence, reasonable care and avoid self-dealing and gifts that could affect your decisions and loyalty to scheme members.
As a trustee, you will definitely be confronted with certain decisions with some power behind them that in part may not be in favour of the scheme objectives. You have to reject and put them on record, as you will be judged by those decisions.
Without being ethical, pension funds will be vulnerable to manipulation; which may prevent the scheme from meeting its liabilities, putting the lives of people in jeopardy.
Communicate with scheme-members
Trustees often devote most of their time to the technical and detailed problems of operating a fund in meeting regulatory standards and ensuring that financial soundness is maintained.
As a result, communications with participants and employers are often given only brief attention.
However, communication is an important aspect of a trustee’s responsibilities. The law governing pension schemes requires trustees to disclose certain information about the scheme to its members.
This information must be communicated in a clear, accurate, and timely manner to promote trust and transparency in the scheme’s operations and assist the members in making appropriate retirement decisions.
Most trustees adhere to this through the issuance of member statements and annual reports on the scheme. To be effective as a trustee, especially a member-nominated trustee, you must adopt a pragmatic approach to communicate with members of the scheme.
Even as you operate under a burden of confidentiality and you cannot be leaking everywhere about what was discussed – which can often include some confidential information, you must try to inform members about some basic information they should know – probably on investment performance, administrative cost, benefit entitlement and employer default among others. Identify appropriate channels for communicating this information to members.
Know which channel will best get you to reach your members – email, text messages, online portals, direct physical engagement, periodic newsletters, among others. Do not let them get to know from other sources, as this may affect their trust in you regarding transparency and accountability. You must be open and communicate to build their confidence in the scheme.
Be interested in meeting minutes
Another step toward becoming an effective trustee is realising that you must pay attention to some small details, including the minutes routinely taken at meetings. Minutes are the formal record of your deliberations.
When you became a trustee, did you request the minutes from past meetings? If not, you should do so – at least for the most recent ones – and read them. Do not attend meetings without having read the minutes first. Why are the minutes so valuable?
They reveal what has been discussed and the decisions made, but more importantly they give you insights into who belongs to which ‘camp’ and who has the most to say.
This depends, of course, on how the minutes are recorded and the extent to which they identify individual trustees’ participation in the meetings.
Some minutes are more useful than others. However, even the least useful minutes contain valuable information. If a dispute arises in the future, the minutes will serve as the legal basis for any findings.
Like other boards, you can protect yourself against issues stemming from the board’s conduct by documenting your disagreement, especially if you believe the decision made may not be in the best interest of workers.
By putting it on record, you make other members aware of the legal consequences of that decision, which significantly protects the members’ interests.
Therefore, minutes deserve some of your time. Most trustees believe their role begins and ends with board meetings.
However, it does not take long to discover that something may be wrongly recorded or misinterpreted. So, read the draft minutes and reply with corrections for anything you think is incorrect or lacks precision.
Do not enter meetings without having reviewed the minutes beforehand; you may not have time for details. Minutes exist for a reason. Use them.
To conclude, as a member of the board of trustees, your effectiveness is the foundation for protecting the scheme in the interest of its members.
As a trustee – apart from the independent trustee – whether you are representing the sponsor or members of the scheme, remember that you are in the best position to influence the future of your own retirement income and that of your colleagues who are members and have appointed you to represent their interests. Do not let them down.
