OUR THOUGHTS ON:

Fiduciaries: It's Time to Take Responsibility for Valuing Your Plan's Investments

ERISA

By Todd Lucas

Gone are the days when employee benefit plan investments consisted of only stocks, bonds and mutual funds. Plans now regularly invest in financial instruments such as hedge funds, private equity funds, real estate funds and partnerships. These types of investments are often referred to as alternative investments.

Alternative investments are valued in a number of ways, and it’s the fiduciaries’ responsibility to ensure that these investments are properly valued. Fiduciaries that do not follow the ERISA standards of conduct may be personally liable to restore any losses to the plan arising from inaccurate estimates of investment values.

Fiduciaries often outsource the valuing of their plans’ investments to the investment custodians or investment managers. However, fiduciaries can never outsource their responsibility for valuing plan investments.

Plan Internal Controls

Effective internal controls can help ensure that plan assets are properly valued. Example controls include, but are not limited to:

• Monthly or quarterly review of trust statements
• Regular communication with your investment manager
• Comparison of quoted sources and appraisal reports with recorded values
• Documentation of process in plan committee minutes

Alternative investments can require some additional procedures. Fiduciaries need to understand the nature, strategy and assumptions utilized in valuing these investments. Obtaining the audited financial statements of the alternative investments as well as the trustee or custodians’ Controls at the Service Organization (SOC) Report can assist in accomplishing this.

The plan auditor can be a valuable resource to fiduciaries by providing advice regarding best practices and recommendations involving the plan’s internal controls surrounding the plan’s investment valuations.

© 2013 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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