Recent bank failures and resulting market volatility have captured headlines in recent weeks, and many individual investors reacted quickly. However, when it comes to fulfilling their fiduciary duty in the face of unexpected news, trustees should remain calm to avoid costly investment mistakes resulting from investor emotion, investment experts advise.

That was one of the key messages delivered by a panel of speakers who shared insights on what trustees should consider to protect their investments during an International Foundation webcast, “Bank Failures and Market Volatility: What Trustees Need to Know Today,” recorded March 23, 2023. Panelists highlighted three important considerations for trustees.

1 – Don’t Panic

Pension plans maintain a long-term investment horizon, said Graham Summers, president and chief market strategist at Phoenix Capital Research. Trustees shouldn’t panic during moments of volatility, he said, advising trustees to instead focus on the time horizon, the investment policy statement and monitoring asset allocations with the pension fund investment consultant. Multiemployer pension plans have the benefit of time to let the market play out, added Mayoung Nham, principal at Slevin & Hart P.C.

2 – Consult With Investment Professionals

Professional advisors, including investment professionals, help trustees fulfill their fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA), including the duty of prudence. It’s important for trustees to meet regularly with investment professionals, get the necessary information to make decisions and document the process. Trustees should have plan professionals (e.g., investment consultants) look at the plan’s risk exposure with banking stocks, explained Sandy Lincoln, CEO of Lincoln Investment Perspectives, LLC. Looking beyond banking stocks, an investment consultant can help trustees make sure that the plan has funds that perform well in different types of environments.

Following are potential items to review with investment professionals.

• Diversification strategies for a long-term horizon
• Expectations for risk exposure to even out
• Benefits of holding investments

Potential questions to ask the plan’s investment professionals include:

• How does our plan diversify within each asset class?
• Does the asset allocation remain in target ranges in the investment policy statement?
• What funds perform well in a low interest rate environment?
• What does data show about the plan’s history during recessions?

3 – Document Your Decision-Making Process

Trustees can consult with legal counsel to make sure that their records show that they have fulfilled their fiduciary duty to participants. Documentation (e.g., meeting minutes, advisor reports) shows that trustees are knowledgeable about current events and what tools are available should plan assets have some exposure, Nham explained. In addition, stress-testing the plan, risk tolerance and cash flow are ways to document prudent management of plan assets, panel members noted.

Learn More

International Foundation members can tune in for a discussion on what led to the challenges in the banking sector and how banking is impacting the broader financial system. Topics covered include:

• Recap of past 40 years of low inflation
• Banks’ role in the economy versus the stock market
• The impact of consumer confidence
• What the Federal Reserve is doing
• FDIC insurance on participant accounts or custodial accounts.

Visit our InfoQuick on Inflation & Market Volatility for more information.

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.