July 23, 2019

By Luke Bierman

The last few months have offered several examples of why attention to fiduciary duty remains a critical and evolving component of a pension plan trustee’s responsibility. Debates about the precise nature of fiduciary duty, its appropriate application, and its scope have popped up in the retail, the regulatory, and the pension fund spaces. These debates underscore the need for pension fund trustees to remain focused on and current about their fiduciary responsibility.

In April, President Trump signed an executive order promoting energy infrastructure and economic growth that requires the Secretary of Labor to review existing guidance regarding the fiduciary duty for proxy voting. Because they take seriously DOL guidance on ERISA (the law governing private pensions), public pension fund trustees may well be affected by this executive order when making ESG-related assessments in this area.  

In June, the SEC adopted Regulation Best Interest (Regulation BI) to impose new rules for brokers when offering investment advice. The precise nature of the fiduciary responsibility required by brokers under Regulation BI was subject to interpretation and not resolved by its over 700 pages. Industry advocates lauded Regulation BI for its protective features while consumer advocates were less sure that fiduciary obligations as promised were as clear as touted. At about the same time, the House of Representatives passed the SECURE Act, which may have muddled the precise nature of the fiduciary obligations of employers who offer annuities in their retirement plans.

Also, a commissioner of the Commodities Futures Trading Commission is creating a panel of experts to explore the impact of climate change on financial markets while state financial regulators and legislators are considering the impacts of some of the recent changes affecting fiduciary duty in the areas described above.

These recent actions that can impact the fiduciary duty of brokers, employers, trustees and others reflect the continued essential nature of the responsibility of those entrusted with managing public pension funds. 

Public pension trustees must act in the best interests of their members and beneficiaries. The fact that others may have different views of how to exercise that responsibility does not diminish the trustees’ ongoing duty in putting the beneficiaries’ interests first. Should changes in the legal standards for how public pension trustees must act be adopted, the trustees must remain aware to ensure compliance with that new standard. These may not be easy rules for trustees to follow but they are essential to the proper functioning of the public pension system.