Socrates and… Defined Benefit Plans?
What comes to mind when you think of Socrates? Probably not defined benefit plans. And yet, a recent blog entry posits that there is indeed a connection.
In “Know Thyself: Socratic Thoughts on Defined Benefit Fee Policy Statements
,” Mike Clark, Consulting Actuary at Principal Financial Group, argues in a recent blog entry that Socrates’ thoughtful approach of examining and questioning what is behind simple facts and conventional wisdom is something that can be applied beneficially to DB plans.
“In real life, Socrates usually said things much smarter like ‘know thyself,’ and ‘the unexamined life is not worth living,’ Clark writes. “The fact that these quotes have held up for thousands of years makes them sound advice for life in general. But it recently occurred to me that there may be a new application for these tenets for defined benefit (DB) plan fiduciaries.”
Fiduciary risk is one area that fiduciaries can consider thoughtfully, Clark suggests. “Employers have recently realized,” he says, “that other risks exist beyond the economic and actuarial ones traditionally discussed in risk management conversations.”
Fees are another. “It is extremely unlikely that any plan fiduciary would knowingly agree to unreasonable fees for unnecessary services from plan assets,” writes Clark, who argues that when such a thing happens it is because “they did not thyselves. Their fees remained unexamined.” He suggests that this has heightened importance since DB expenses “are much more opaque to plan participants” — an opacity he warns “doesn’t entirely protect DB fiduciaries from fee litigation.”
The DB fee policy statement can help in addressing opacity and in knowing thyself. Writes Clark, “Regular documentation forces fiduciaries to examine their plans, to know thyselves. Not only will this deep introspection bring them fulfillment, but it will also protect them from potentially damaging fee litigation.”