Training New Board Members on Financial Fiduciary Questions

Keeping board members up to speed on all of an organization’s relevant information can be such a daunting task that software companies, like Boardeffect (www.boardeffect.com), have sprung up to help keep board members up to speed.  Other organizations exist to train board members on, well, how to be board members. So it stands to reason that arming your board members with knowledge about their oversight duties as a fiduciary on a plan might make your interactions with them clearer or easier. 

Healthy organizations have turnover on boards as older members rotate off and newer members join in. Most organizations and nonprofits hold a training session or orientation for newer board members, even if that individual has previous board experience; board members need to understand the ins and outs of the specific organization, not just the specifics of being a board member.

Board training experts Board Source (www.boardsource.org) recommend an orientation for all new board members, and note a variety of topics to cover.  Board members have a duty to read and understand the financial statements of an organization, so Board Source recommends all new members have a training session involving the three years of financial records of the organization, as well as the basics in understanding financial statements. Using that session to discuss the retirement plan you oversee can help a board member understand their responsibility in reviewing regular reports on the plan, but also, what isn’t required of them. Board Source, traditionally aimed at nonprofits, suggests that all board members have a job description, so that they understand their duties and their limits too. This is equally true for board members of corporate entities.  

The organizations you work with most likely have a board orientation session or may have a board retreat where new members are given background information on the organization. Training new members to understand their roles and responsibilities towards the plan can be as simple as attending the portion of that board retreat dedicated to financial statements and performance of accounts. It may also make sense to have the staff involved with the plan present too, such as the controller or other designated account holders.

If attending the board training isn’t possible, ensure that training materials for new members are included in their board briefing books or packets. Board members should receive information, including financials, enough in advance that they can review and dig into the materials. Including a history or development of the retirement plan you advise can help newer members of the board understand past decisions and the present context of the plan.

If the board of the organization you work with has a board manual (a standard set of documents discussing roles, including a calendar and noting specific committees) you might see if you can include a letter or explanation of the plan you advise and any contextual information a new board member would need to know to feel comfortable with the plan’s performance, such as news articles about the accounts or actuarial notes about new plan participants and if a large number of employees might be retiring soon.  A new board member might also need to understand who among the staff does the heavy lifting in onboarding and answering questions. 

Training new board members might also be done with an eye towards the future. If, as a financial advisor, your work mainly involves the chair of the board, or the chair of the financial oversight committee, understanding that a new board member may one day be that board chair can help shape your communications and day to day relations with your board and fiduciaries. Reflecting on what you’d like the board chair to know as you work with him or her now will help determine the areas where a new board member could be trained.

Information should be given to new board members about their roles as fiduciaries under ERISA as well. The organization’s general counsel or attorney could conduct this portion of the training. Preparing information for a training session should touch on each of the five major areas of responsibility under ERISA, including: the Exclusive Benefit Rule; the Prudent Man Rule; the Prudent Diversification Rule; the need to adhere to Plan Documents; and the rule against Prohibited Transactions.  This basic information could also go into a board manual, so that a board member could refer to it on their own, or contact the general counsel, rather than your office, with questions about the extent of their fiduciary duties and areas of responsibilities.