DOL OFFICIAL WARNS PLAN FIDUCIARIES TO ASSESS MANAGER VALUATIONS AND METHODS
In testimony before the Working Group on Hard to Value Assets, Robert Doyle, Director of Regulations and Interpretations, Employee Benefits Security Administration, reminded plan fiduciaries of their obligation to review the methodology for valuing “hard to value” assets and changes in valuations. He noted that plan fiduciaries should also analyze whether pooled fund managers are qualified to manage the asset. Mr. Doyle cited a 1996 DoL letter that states that if a plan that invests in derivatives (including structured notes and CMOs), the fiduciary must conduct a heightened level of due diligence about valuation, risk, and market stress. When retaining a third party manager, the 1996 letter requires a plan fiduciary to determine whether the manager is competent to monitor the derivatives activity. Mr. Doyle separately discussed a plan fiduciary’s obligations with respect to investments in target date funds.
OUR TAKE: Investment managers for employee benefit plans (including fund managers) should expect some hard questions from their benefit plan clients about hard to value assets. Managers should be ready to deliver comprehensive valuation policies and procedures and a description of the people and operational systems in place to value Level 3 assets.