What services does HFG provide?
HFG’s serves as (i) Investment Named Fiduciary, or (ii) Independent Fiduciary of ERISA qualified plans. As the Investment Named Fiduciary, HFG functions as the fiduciary with respect to all activities typically associated with managing the investment of the assets of a pension plan. In the case of an independent assignment, HFG assumes fiduciary responsibility for making certain specific decisions on behalf of the plan.

Investment Named Fiduciary Services

What does HFG actually do as an Investment Named Fiduciary?
Our work begins with an assessment of a plan’s actuarial liabilities and funding projections, which will lead to a review and potential revision of a plan’s investment policy statement. Based upon the Investment Policy Statement, HFG, if appropriate, collaborates with the plan’s consultants to review and revise asset allocation plans, rebalancing policies, and risk control standards. We also review, identify and select eligible asset categories, managers, strategies and consultants for the plan. Finally, HFG will perform the critical fiduciary function of monitoring all of the investment managers hired on behalf of the plan.

In addition, HFG will review and negotiate third party vendor agreements on behalf of the plan. This includes agreements with trustees, record keepers, and administrators. Based upon their years of industry experience, the HFG partners are highly skilled in negotiating these agreements. While reviewing these agreements may not typically be viewed as named fiduciary activities, these services are a significant component of HFG’s value proposition and are consistent with the ERISA requirement to defray plan expenses. Over time, HFG expects to extract significant cost savings from these relationships for the benefit of a plan.

What’s the difference between HFG and other pension plan consultants and service providers?
HFG’s business model is fundamentally different than that of investment consultants. First, consultants have traditionally avoided fiduciary status.. Second, consultants often approach these engagements with an investment manager business model. They charge fees based upon assets under management as well as, sometimes charging performance fees.
HFG provides fiduciary services and receives a flat fee for these services.

Many firms such as trust banks, investment consultants and investment managers approach pension engagements either from the perspective of a fiduciary or from the perspective of an investment professional. HFG integrates these two disciplines and readily accepts fiduciary duties.

How can a corporation minimize fiduciary risk and liability in appointing HGF as a plan’s Investment Named Fiduciary?
ERISA specifically permits fiduciary responsibilities to be allocated among fiduciaries. Plan documents can be amended and specifically identify HFG as the Named Fiduciary for investment management of the plan’s assets. This structure would clearly isolate and assign investment fiduciary responsibilities to HFG.
Must a corporation amend its plan documents in order to appoint HFG as the Investment Named Fiduciary?
No. If the plan documents set out a process by which a named fiduciary is appointed then HFG can be appointed through this process. For instance, many plans authorize the corporation’s board to establish committees (such as investment and benefit committees) that serve as named fiduciary for investment and plan administration, respectively. Under this structure, an investment committee could delegate its investment fiduciary responsibilities to HFG.
Does it make a difference whether the corporation amends the plan documents or appoints HFG through a process?
Amending the plan documents will likely provide greater protection to the corporation and to the board. Here’s why: amending the documents could be viewed as a settlor function, not a fiduciary function. Settlor decisions are not typically fiduciary decisions, subject to ERISA’s fiduciary rules. Nonetheless, even if HFG’s appointment is treated as a settlor function, prudent corporate governance suggests that the corporation should still monitor HFG’s activities.
With HGF as its Investment Named Fiduciary can a corporation eliminate all its investment fiduciary responsibilities and liabilities?
No. By appointing HFG as the Investment Named Fiduciary, a corporation will have taken an important step in managing its investment fiduciary risks. The corporation will likely reduce its responsibilities and liabilities substantially. However, the corporation would presumably retain a residual responsibility to monitor and review HFG’s performance. HFG produces biannual reports designed to assist senior management in this monitoring role. HFG’s processes and reports are designed both to reduce the plan sponsor’s potential fiduciary responsibility and to alleviate the resources allocated to pension plan investment management. Our job is to make your job easier.
Can a corporation eliminate its investment committee after it hires HFG as the Investment Named Fiduciary?
It depends. HFG can either replace or complement current committee structures. All of the investment fiduciary functions performed by the committee can be assumed by HFG. However, if a corporation wants to maintain its investment committee then the committee could assume the function of monitoring HFG’s role as the investment named fiduciary.
Won’t HFG simply be adding another layer of expense on top of the plan?
It is likely HFG will generate cost savings well beyond its fees. In addition to negotiating fee arrangements with service providers, we will implement a coherent and cost efficient investment structure for plans. We eliminate needless complexity and negotiate fees aggressively with investment managers to create the optimal framework for achieving plan investment objectives net of costs.
Will HFG merely terminate all of a plan’s current managers and consultants and substitute HFG’s own favorites?
No. HFG does not have a stable of favorite investment managers. Changes in the investment and investment manager lineup would be based on HFG’s best judgment on how to meet plan objectives net of all costs, including management fees and transaction costs. Changing managers can be very expensive. So it is unlikely that HFG will recommend an immediate wholesale change in the structure of a plan’s portfolio.

Independent Fiduciary Services

What services will HFG provide as an Independent Fiduciary?
Corporations can also delegate specific fiduciary responsibilities — even if HFG is not the named fiduciary. For example, the corporation can designate HFG to oversee a company stock account in a 401(k) plan as well as manage a plan’s participation in a securities lending program. HFG can also oversee and direct multi-party litigation involving the plan, including settlements.

Plan sponsors can also retain HFG to handle unique situations involving ERISA-qualified pension plans — such as in a corporate restructuring or workout. HFG can be appointed as fiduciary to oversee the plan during this process. An independent, conflict-free, fiduciary would act solely in the best interests of the plan participants.

General Questions about HFG’s Services

Why can’t corporations do this for themselves?
They can, and many corporations do. However, in many cases the complexity of legal requirements, investment products, asset classes and global markets has outpaced the professional capabilities of many investment committee members. Most business people are neither investment nor fiduciary experts. Furthermore, prudent oversight and management of qualified plans can no longer be accomplished on a part-time basis.

Even though they may lack the relevant skills and time, ERISA is clear that investment committee members are plan fiduciaries and holds them to a very high standard — “prudent experts.” Besides seriously distracting them from their core business duties, investment committee members can also face personal legal liability when class action lawyers claim breach of fiduciary duties. The basis for a claim might be that:

  • Excessive plan expenses
  • Imprudent investment fund selection and oversight
  • Imprudent investment manager selection and oversight
  • Failure to abide by investment guidelines
How can HFG claim to be a prudent expert?
HFG has deep experience and expertise in the spheres that define fiduciary responsibility — investment, legal and corporate governance. For example, Barbara Shegog and Jane Tisdale were senior investment professionals at SSgA with $2 trillion in indexed, qualitative and fundamental investment strategies across all asset classes and geographies. Few investment professionals can claim exposure to this broad spectrum of investment expertise, especially regarding ERISA-qualified pension plans. And that’s just on the investment side. On the legal side, few attorneys can match Mitchell Shames’ experience as SSgA’s general counsel guiding that firm from inception to industry leader. (For more on HFG partners, click here.)
How does HFG charge for its services?
We charge a flat fee. Fees are not based on assets under management or investment performance. They are based on the scope of the engagement — taking into account both pension plan complexity and level of risk.
How is a corporation protected so that HFG does not engage in a Madoff-type scheme?
Transparency. Every action and decision HFG makes on behalf of a plan will be documented. Furthermore, as an ERISA requirement, all qualified plans must be held in trust by a trustee (or held by an insurance company). The trustee monitors and records every transaction in the trust. HFG will never directly handle the assets of a plan. In other words, an independent third party will hold and account for the assets of the plan.

In addition, in the context of managing the assets of a plan, each investment manager generates monthly and annual transaction and portfolio holdings reports for each of its accounts. The reports must also be reconciled to the trustee’s records. This reconciliation process by two independent third-parties is a critical safeguard for a plan. Finally, each plan must complete and file Form 5500 as required by the Department of Labor, the Internal Revenue Service and the Pension Benefit Guaranty Corporation.

HFG also enforces policies and procedures that require multiple signoffs and reviews so that no one person can act independently with respect to a fiduciary client. In total, oversight of these processes reflects the procedural due diligence you can expect from HFG.

What factors should a corporation consider in selecting and hiring HFG as the Investment Named Fiduciary or Independent Fiduciary of a plan?
First and foremost, a corporation should be satisfied that the HFG partners have the skills, experience and judgment necessary to serve in an investment fiduciary capacity. In particular, the breadth of investment experience to understand the complex investment issues facing a pension plan portfolio, as well as a thorough understanding of ERISA and fiduciary processes. HFG will provide you with materials to assist you in this due diligence and will be available to answer any of your questions.

General Questions about ERISA and Fiduciaries

What is a fiduciary?
Any person, committee or organization that exercises any discretionary authority or discretionary control respecting management of a plan or exercises any authority respecting management or disposition of the assets of a plan may be considered a fiduciary. Investment managers are fiduciaries. In addition, anyone with discretionary authority over the administration of an ERISA qualified plan would also be a fiduciary.
What is a named fiduciary?
The named fiduciary has the authority to control and manage the operation and administration of a plan. In effect, the fiduciary buck stops with the named fiduciary.
Can there be more than one named fiduciary?
Yes. For instance, some plans designate a named fiduciary for investing and managing plan assets and another named fiduciary for plan administration.
Who typically serves as a named fiduciary?
Practice varies. Some corporations specify the corporation as the named fiduciary. In this case, the directors often delegate these responsibilities to specific committees. Many corporations create a benefits committee and an investment committee to fulfill these roles. Other times, a corporation will specify these two committees in the plan documents as the named fiduciaries.
Who serves on these committees?
Often senior managers with expertise in various corporate functions: human resources, treasury, accounting, audit and legal. Since many of these committee members have significant functional responsibilities, staff members generally will prepare reports and analyses for approval by the committee.
How are the actions of the named fiduciary judged?
ERISA establishes a number of standards against which a fiduciary’s behavior and judgment is evaluated. Fiduciaries must act solely in the interest of the plan participants and exclusively for the purpose of providing pension benefits to the plan participants. Fiduciaries must avoid any conflicts of interest and they must act as prudent experts when making decisions. Fiduciaries must also reasonably defray expenses of the plan and diversify the assets of the plan.
What kind of liability do named fiduciaries have?
ERISA imposes personal liability on a fiduciary for breach of fiduciary duty. A fiduciary, in certain circumstances can also have co-fiduciary liability for the acts or omissions of other fiduciaries.
What do named fiduciaries do?
The Investment Named Fiduciary is responsible for all aspects of investing the plan assets. These tasks include

  1. Establishing the overall strategic asset allocation for the plan
  2. Monitoring, evaluating, hiring and terminating investment managers
  3. Implementing the allocation of plan assets among different asset classes and investment managers
Does the Investment Named Fiduciary have the discretion to either increase or decrease the investment risk in the portfolio?
Yes. The Investment Named Fiduciary retains the authority to make adjustments to the risk profile of the plan’s investment portfolio.
What prevents an Investment Named Fiduciary from implementing either too much or too little risk in the portfolio?
The Investment Named Fiduciary must make all of its decisions in its capacity as a prudent expert. All investment decisions related to the risk profile of the portfolio will be judged against this standard. Once the investment return assumptions are established, then the portfolio’s risk profile should be consistent with these return objectives. Too much or too little risk may be viewed as not prudent and therefore could invite allegations of breach of fiduciary duty.

Frequently Asked Questions

Independent Fiduciary Services

General Questions about ERISA and Fiduciaries

* HFG strongly recommends that each client and potential client consult with its own pension and benefits counsel. The positions set forth in these FAQs, and throughout this website, reflect the collective experience and expertise of the partners of HFG. However, neither HFG, nor its partners, provide legal advice. We welcome the opportunity to talk with your counsel to talk about any of the issues raised in these FAQs and this website, or to address any other questions which your advisors may raise.