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I have read with great interest countless articles, opinions, and new legislative proposals resulting from the Enron debacle.

It is only natural for our legislatures to weigh in with lofty speeches, scathing criticisms, and conspiracy innuendo. Clearly, there exists a likelihood of new compliance requirements for the retirement planning industry. My kinsmen in the legal profession will surely join the game by protecting victims via the ever-popular class action lawsuit.

All things considered, it may be worthwhile for the working public, if the contemplated reforms result in a solid framework for providing retirement planning guidance to plan participants.

Lost in recent events has been the role of the “corporate trustee” who, arguably, is chiefly responsible for the sound administration of corporate retirement plans.

My career in the retirement planning industry, like that of so many other attorneys, has included time working in the trust departments of various banks. That was time well spent, when considering it provided hands-on experience regarding the common law theory of fiduciary responsibility while acting as a trustee for another.

The Employee Retirement Income Security Act, or ERISA, reminds us that “The Trustee” of a qualified retirement plan has the exclusive duty to protect the benefits of plan participants and beneficiaries. Often, however, this simple duty seems difficult to practice. Frequently, I learn about the shirking of fiduciary responsibility not only by individual plan sponsors, but, also, by professional corporate plan trustees.

It seems that the professional corporate trustee industry, like much of corporate America, has executed a shift from employer paternalism to a laissez-faire philosophy of permitting individual employees to save, invest, and plan for the future. This is evident in the curtailment of defined benefit pension plans in favor of defined contribution plans.

The natural consequence has been self-direction of investments and individual participant brokerage accounts. Our legislatures have sanctioned this retirement planning approach by providing fiduciaries with the popular protection afforded to them by Code Section 404(c), and the interesting concept of the Directed Trustee.

Have these shifts been harmful? Arguably, no. But the result in many cases has been “The Law of Unintended Consequences.” The pendulum may have swung too far.

Certainly, the concept of a discretionary trustee retirement planning program was hard to sell during the investment boom of the last 10 years. Who needed one when, as we quickly learned, an untrained monkey could pick stocks that outperformed the market merely by throwing a few darts? Any Plan Sponsor was considered capable of selecting options for the company retirement plan using a designated mutual fund list.

Moreover, it was thought that, given enough “educational materials,” any “Jane or Joe Lunch Pail Participant” could become wealthy beyond their wildest dreams. So, then, why not let the employer fund employee retirement plans using employer securities? Truly loyal employees could demonstrate their fealty by investing 100% of their individual contributions in additional company stock.

Even those of us who specialized in fiduciary laws, personal investing, and retirement planning who may have thought this was misguided were confident in the protection afforded us as directed trustees. After all, we were only doing what made the customer happy.

Certainly, times appear to have changed! A movement is underway to permit and provide investment and retirement planning advice on a large scale. Recent legislative changes and possible future laws permitting enhanced retirement and investment advice for plan participants will, hopefully, bring welcomed relief to a dazed and confused employee work force, reeling from significant damage done to their retirement nest eggs and to their net worth.

However, the issue is whether the coming changes inure to the exclusive benefit of plan participants and their beneficiaries. Are more laws the solution? Or must change come from the professional community established to provide this function all along–the corporate discretionary trustee? (See sidebar for suggestions that would put them on the right path.)

In conclusion, shouldnt the professional corporate trustee be leading the charge for change instead of sitting on the sidelines, serving as little more than a conduit for soft dollars and little risk? (When I last checked, the general powers afforded a trustee seemed rather extensive, owing to the expertise associated with the title and function.)

Obviously, there are no assurances in life; and, the Enron debacles and others like them shall pass. But for the many Jane and Joe Lunch Pails, an able professional trustee can make a significant difference. Plan sponsors owe it to all employees to retain able and competent independent trustees to guard against these types of fiascoes in the future.

, JD, is senior vice president-business development for the MemberBank program of PlanMember Services Financial Corporation, Carpinteria, Calif. His e-mail is cguanciale@planmember.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 12, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.