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Reasonable and prudent Featured

7:43am EDT January 30, 2004
Business owners wear numerous hats. And if a business offers an employee pension or retirement plan, one of those hats means the company and some of its management are bound by fiduciary responsibility to safeguard the interest of its employees.

"There are regulations under ERISA that set forth certain duties they (the company) have to comply with," says Daniel L. Bell, an attorney in the labor and employment practice group at Brouse McDowell. "The fact of the matter is that they are so generic, they don't have to fit any fact pattern."

It is not enough that employers simply offer a qualified retirement plan and make sure that its administration meets ERISA standards. The employer is also responsible for making sure the plan itself is a sound financial option.

"The duty of the service provider trustee is to invest the pension fund as any reasonable and prudent investment adviser would under those circumstances," Bell says.

The question is, what is considered "reasonable and prudent" under the ERISA regulations? Unfortunately, the language is ambiguous. However, in some cases, such as with Enron, the wrongdoings are clear.

"The Enron story is one where many employees had a significant amount of retirement invested in company stock, (and) you had the CEO telling them, 'You should buy this stock'," says Bell. "And all those (employees) who were at one time millionaires ... now have nothing."

Defending suits

Shareholders can bring class action lawsuits against companies for a number of reasons. And if the suit ever does make it to court, a judge may still determine there's no merit for the case and throw it out.

"It (the class action) is a very powerful tool when used for an alternative purpose ... which is often to receive significant legal fees," says Bell. "Often these suits are brought against companies already in trouble ... (the company) has one knee on the canvas and the buzzards are circling."

But a suit based on ERISA malfeasance falls under different rules of law, which means it is more likely to make it into court. This is where the fiduciary responsibility of the employer comes in.

"Anyone who offers a pension plan should be wary," says Bell. "It can cost millions of dollars to defend a lawsuit, even if it has no merit."

The big issue is prudence. All investment actions must be solely in the interest of the plan, not the plan provider or employer. The employee sues to recover the harm caused to the retirement plan - a distinction that is often not clear.

"The employee is not going to get direct recovery," Bell says. "They sue to recover for the harm caused ... and that is a battle extraordinaire and has been the subject of a great deal of expert testimony."

Because ERISA-based lawsuits are becoming more common, an employer might feel the urge to offer in-house financial advice to employees. But Bell cautions against that approach.

"You give the wrong advice and you get nailed that way, too," he says. "However, you would be wise to raise the issue (of advice) to the plan provider."

By simply doing an evaluation of the bias of a plan or the plan provider, or questioning the plan's investment strategy, you have taken a step toward fulfilling fiduciary responsibility.

"Some companies are hiring outside investors or an independent third-party financial adviser," Bell says. "Recent changes in the law have freed the hands of the employers, allowing them to do that."

How to reach: Brouse McDowell, (800) 837-5711 or www.brouse.com

Pay day

Average starting salaries for accounting and finance professionals should remain consistent this year with 2003 levels, according to the 2004 Salary Guide from Robert Half Finance & Accounting and Accountemps.

Following are some other key points from the 2004 Salary Guide.

* Loan administrators can expect the largest salary increase of any accounting and finance category. Average starting salaries are projected to rise 9.1 percent, to the range of $32,750 to $45,000.

* Base compensation for credit analysts at large companies will increase an average of 3.3 percent, to between $34,500 and $44,500.

* Accounts receivable/payable managers at companies with more than $250 million in sales can expect average starting salaries to rise 2.6 percent, with base compensation ranging from $41,500 to $56,250.

* Senior financial, budget, treasury and cost analysts at companies with $25 million to $250 million in annual sales will see average starting salaries of $47,750 to $61,000, a 1.2 percent increase over 2003.

* Entry-level general and audit accountants at companies with less than $25 million in annual sales will see a 2.3 percent decline, with average starting salaries of between $28,500 and $34,500.

* Vice presidents of finance can anticipate a 12.3 percent decrease in average starting salaries at companies with $50 million to $100 million in annual sales, to the range of $95,000 to $125,000 per year.