Are well-paid trustees the answer ?

Many funds have trustees who are essentially part-timers. Do we need to move to a situation where trustees are paid good money and held accountable for their actions ? Or will that only add to the already high costs ?

The Chairman proudly opens the meeting of the Board of Trustees that governs the Big Company Retirement Fund, saying, "An apology has been tendered from Mr Clerk, who is too tired to attend after working late last night due to stock-take." Since trustee meetings are held quarterly, Mr Clerk, in whom the members of the Big Company Retirement Fund have placed their trust, will in all likelihood not give the Fund another thought for a full six months.

Practical issues

The above scenario will be familiar to anyone who has attended trustee meetings and is intended to highlight a real practical hindrance to effective fund governance.

The governance and operation of a retirement fund entails similar aspects as those of a company - strategic planning; financial control; deployment (investment) of assets; communication; compliance; insurance to name only a few.

On top of all these responsibilities, the trustee also takes on the expectations of the members and their beneficiaries as well as a healthy dose of criminal liability if he or she does not succeed. A job hunter would expect a hearty salary to fill such a job spec, but an employee of the Big Company will do it for free, over and above the duties involved in earning his regular salary. Line managers begrudgingly allow trustees 'time off' to attend trustee meetings.

Expectations have changed

If it's logical business sense to gain value from one's employees through ensuring that they are qualified for the job, have the time and tools to carry it out, are afforded responsibility and accountability and are appropriately remunerated, then why are these criteria not applied to the position of retirement fund trustee? One possible answer is rooted in the past. Where the benefits were fixed, an insurance company effectively ran the fund and the employer carried the risk. Not too much was expected from the trustee.

The move to defined contribution arrangements, coupled by a flood of complicated legislative changes and a spotlight on fund governance has increased the trustees' role exponentially, without the commensurate recognition of what is needed to obtain the required output from the trustee employed by the company.

Strategic business issue

The sponsoring employer needs to recognise that governance of its retirement fund can have a significant impact on the company. It should therefore assist the Board of Trustees in formally integrating a trustee's duties into his or her regular job functions and providing other tools such as Internet access, publications, association memberships, etc. If no remuneration is paid, this could go a long way to alleviating the problem.

Alternative solutions

Alternatively, the trustee duties could be formally included in an employee's job description. This would have the affect of creating a method of performance measurement linked to remuneration, without the fund having to add further expenses.

To avoid a direct cost to the employer, responsibilities could be shifted to cater for the employee's additional workload as a trustee creating an indirect cost. The benefit to the company is a wellrun fund.

Cost management

The Board must at least debate the issue and, if required, the fund's rules need to be amended to allow for the payment of trustee remuneration as a fund expense. This additional cost must generate value and should be balanced by formal measurement of the trustee's delivery and accountability, as required in terms of the Financial Services Board's PF130.

The opportunity cost of poor fund governance is immeasurable. Mr Clerk might have managed his roles as company employee and retirement fund trustee differently if he knew that his absenteeism from the trustee meeting would be examined, with real consequences.