Joint Trustees for DC Plans--Then What? Pensions & Investments (04/02) Vol. 30, No. 7 p.12; Barry, Michael P.
Democrats' proposals for solving the problem pointed up by the Enron 401(k) losses include requiring a joint board of trustees for defined contribution (DC) plans, in which the board would have to have equal representation of employees and managers. However, writes Michael P. Barry, the president of Plan Advisory Services Group, it appears that participants are actually part of the problem, as data indicate that single-employer defined benefit plans outperform single-employer DC plans, largely because participants who make poor investment choices are in charge of asset allocation. Still, it is difficult to argue with some points made by those who support just trustee boards, namely that the money belongs to the participants in the first place, Barry writes. In order to address the problems in the DC system, Barry proposes establishing standards for participation in a fiduciary committee, and more importantly, establishing standards of performance for DC plans. Creating standards of performance could begin by creating a benchmark set of investment options, by having prize-winning economists develop a benchmark asset-allocation model, then applying this model to a set of standard investment profiles to see a benchmark rate of return for each model. The benchmark so developed would be applied to the actual pension plan, first by rating the plan against optimized abstract profiles, and secondly by comparing the benchmark performance with the plan's actual performance. Before establishing standards for serving on a fiduciary committee, there needs to be an established measure of what a well-managed DC plan would look like, Barry concludes, and he intends his proposal as a first step for creating such a measure.