Reference no: EM132747807

The Realtors Pension Plan

• The pension committee for the Realtors Pension Plan needed to select a defined contribution record keeper for their plan when it was first put in place. The pension committee followed the process outlined in its governance documents to make the selection.

• According to this process, service providers were to be selected based on a search process that involved reviewing a lengthy list of candidates provided by an external consultant. This list was then reduced to a short list of potential candidates. The final candidate was selected following a series of presentations, site visits, and an analysis of information obtained from the service provider and the external consultant. The entire search and selection process, including minutes of all committee meetings, was carefully documented.

• The selection process was completed two years ago, and Records Inc. was chosen as the record keeper of the defined contribution plan. They performed all the regular tasks such as keeping accounts of member contributions, offering a suite of investment funds for members, transferring member assets between investment options when requested, reporting back to members, etc. For the first three months of service, however, ongoing complaints about errors in record keeping were brought to the attention of human resources (HR) staff, who forwarded them on to the committee. HR staff were invited to attend each of the next quarterly meetings, in which the pension committee asked more questions to determine if progress had been made in resolving the record keeping situation. On each occasion, HR staff reported success or improvement.

• One month ago, a plan member attempted to make a transaction and was shocked to learn that her funds had not been allocated according to her prior instructions. Just before a recent market decline, the member had instructed Records Inc. to move most of her funds out of equity investments and into a money market fund. She made this decision because she knew she would need the cash fairly soon, and not because she could predict the market's downturn. When she went to access her account again, she discovered that all of her funds had remained in the equity investments and, thus, she suffered a significant financial loss.

• The member immediately called the HR department to complain. The value of her loss has not yet been estimated, as much will depend on the records produced concerning the value of the specific funds divested and purchased and the dates of instruction. Nevertheless, the member has indicated that she has hired a lawyer to determine if she may seek compensation.

Problem 1: Describe the fiduciary duties that apply in this circumstance, where a pension committee is the administrator of a defined contribution pension plan in which members have investment choices, and where those choices are managed by an external recordkeeper. Be specific, and fully identify the duty/duties