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Operating Pension Funds In Compliance With ERISA Procedures:
How to avoid a Department of Labor audit: A primer for lawyers.

By Stanley L. Iezman

Stanley L. Iezman is the President and Chief Executive Officer of American Realty Advisors, a registered investment manager with the Securities and Exchange Commission providing real estate investment management services to domestic pension plans, and an adjunct professor teaching real estate asset management at the University of Southern California's School of Urban and Regional Planning, Lusk Center for Real Estate Development, An earlier version of this article was published in the Fall 1996 issue of the Journal of Pension Plan Investing.

Business and trust advisors and lawyers who represent pension plans or other tax-exempt entities like foundations and endowments that make real property 'investments often are not mindful of the significant procedural issues and concerns that surround the investments of these entities. Unfortunately, the failure to comply with the procedural requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA) may make the trustees of pension plans and the directors of endowments and foundations (and, consequently, their lawyers and advisors) culpable for the failure to take those important yet simple procedural steps. The Department of Labor (DOL) seeks out deliberate or unwitting failure to live up to ERISA's requirements and subjects these investors to vigorous and often uncomfortable reviews. The failure of a pension fund or foundation to comply with these rules may make its legal advisors culpable for participation in an ERISA violation or for malfeasance, nonfeasance or legal malpractice. This article provides a road map that counsel can follow when they set up real estate investment programs for pension plans.

The DOL is becoming more heavily involved in pension plans' real estate investments because of the growth of pension fund assets (which now exceed $7 trillion) and, in particular, because of the growth in real estate assets. Domestic pension plans' private market real estate assets now exceed $200 billion and their public real estate market investments now exceed $160 billion. The DOL wants to ensure that pension funds comply fully with ERISA procedural processes rather than treat them as formalities to be articulated in guidelines and then filed away. The DOL regulators are especially concerned with the political fallout and financial obligations if a portion of a plan's real estate investment pool should fail or otherwise prove to be disappointing to plan participants. The federal government would then become directly or indirectly responsible for bailing out the under-funded pension investor. The DOL is not attempting to sit in Judgment on whether a pension plan made a sound investment but is seeking to determine whether the plan's trustees have exercised their responsibilities in a prudent manner and complied with the procedural requirements of ERISA.

When the DOL discovers egregious examples of malfeasance or nonfeasance in connection with investments by trustees, consultants and/or investment managers, it now aggressively pursues both civil and criminal actions for restitution of invested funds. The following key trustee failures are being targeted:

> Failure to investigate adequately the merits and appropriateness of plan investments;
> Failure to diversify plan investments as evidenced by the concentration of plan assets in a limited number of investment
> Failure to perform appropriate due diligence in connection with hiring an investment manager; and
> Failure to monitor the investments during the investment cycle.

Many real estate investment manager and pension plan trustees who made real estate investments in the 1980s at delighted that the DOL has waited until now to begin evaluating plan real estate investments in great depth. Four to five years ago, most of these real estate portfolios were under-performing their targets. However, now that real estate prices have generally recovered, most real estate portfolios currently are performing well. Many of yesterday's "bad" investments look good or, at least, better today.


ERISA is extensive in its scope; it governs, in part, the manner and way in which pension plan trustees operate. It is safe to say, however, that the investment standards and guidelines established by ERISA focus on process and procedure rather than on the return on investment. They require only that trustees exercise both procedural and substantive prudence in making and/or evaluating their investment decisions. The law seeks to impose coordinates on the manner in which investments are made, rather than to make post hoc judgments about the results of such investments.

If the process by which the investments were made was appropriate and complied with the overall guidelines imposed by both ERISA and the body of law interpreting it, then the investments' degree of success should not be as important from an audit standpoint as the business judgment rule that is intended to protect trustees from liability arising from a poor investment. Clearly, no one can protect pension plan real estate investments from market. forces, but a sound investment process minimizes the risks to trustees that could result from a bad investment.


In all situations, every lawyer must identify the client to whom he or she owes fiduciary responsibility. Lawyers hired by a pension plan have an easy task. Although they may work directly with the plan trustees and must protect them, they must act solely in the plan participants' best interests. Because lawyers are hired by investment managers on behalf of these pension plans to structure real estate transactions and negotiate and document leases, acquisitions and/or dispositions, it may appear that the lawyers' clients are the investment managers. That is not the case. Should a lawyer believe that an 'investment manager is not acting pursuant to the investment management agreement or in the plan participants' best interests, the lawyer must act to protect the plan participants. The DOL lays an active burden on professionals like lawyers and accountants by requiring them to protect the pension plan beneficiaries. There is some belief, among a minority of scholars, that lawyers may be fiduciaries under ERISA and owe the same duties to the pension plan as the investment manager owes to the pension plan. Thus, lawyers need to be concerned with how they act with regard to helping document an investment program.

Typically, lawyers who represent pension plans in connection with their real estate investments are hired by the investment manager, paid by the pension fund, and take directions from the investment manager. However, while acting on behalf of the pension fund, they must also ensure that the investment manager is acting legally and properly with regard to the investment process and that the legal aspects of the investment are proper and conform to industry norms.

In most cases a lawyer acts to protect both the pension plan and the investment manager because the interests of both should coincide. In those rare circumstances in which the lawyers believe that the actions of the investment manager are legally improper, they must so advise the investment manager. If the investment manager does not respond in the best interests of the pension plan, the lawyer must then inform the trustees. Lawyers should not act to sabotage the investment managers but, if they are to protect the fund's investments, they must fulfill their legal responsibilities to protect the plan participants.


There are circumstances, however, when the interests of the investment manager do not coincide with those of the pension fund. Interests may diverge, for example, after the pension fund has made an inappropriate or troubled investment or when both the pension plan and the investment manager are exposed to extensive liability resulting from an investment. At such times, both the trustees and counsel must recognize that this conflict exists and the trustees should seek to appoint independent counsel to ensure that the trust's 'interests are properly represented. For example, in rare circumstances the pension plan may have made troubled investments through an investment manager and the new real estate investment managers hired to replace the displaced manager do not wish to take on the liability of the prior "tainted" transaction. Then it is prudent for the pension plan and its counsel to consider hiring an additional counsel to represent the trust fund in the workout of the troubled investment.

Lawyers who represent a pension plan in connection with their ongoing ERISA compliance and other related matters, normally should be careful, if they represent the plan in 'its real estate activities, to ensure that conflicts of interest do not arise that may be difficult from a practical standpoint to resolve. While those conflicts may not be ethical in nature, they may be practical and impede the smooth development of the real estate investment program. No body of law deals with this issue, but it is a pragmatic 'issue that the trustees of the pension plan, the counsel for the fund, and the real estate investment manager must address. Trust funds should consider providing for a mechanism to allow their investment managers to hire lawyers who the advisors believe can best serve the pension fund in the real estate transaction arena. Thus, the responsibility for the performance of the transactional lawyer falls on the shoulders of the advisor who selected that counsel, not counsel for the fund, or the trustees of the fund.


A pension plan cannot simply decide to make a real estate investment or a stock or bond investment. Every pension plan should develop an investment policy as well as investment guidelines before it starts to invest the plan's assets. Plan trustees should carefully consider the crucial questions of how and in what they want to invest because the investment mix invariably governs pension trust returns. The trustees must issue carefully crafted investment guidelines that fit the trustees' and the trust's risk expectations and financial goals. Well-drafted investment guidelines must discuss diversification of investments, manager selection, asset allocation, controls over the process, and similar issues. They must clearly articulate the anticipated investment strategy and return expectations for each asset class. Particular care must be taken with the real estate portion of the trust investment guidelines to take into account risk, liquidity problems, and all other aspects of an investment's type, form, and substance.

Because investing all of a portfolio in a single or limited number of asset classes is imprudent, approved models for allocating investments require diversification among many asset classes (stocks, bonds, cash, and real estate). An appropriate allocation should take into account the actuarially computed returns necessary to enable the plan to meet its funding requirements given the level of risk that it wishes to assume.

The asset allocation decision seeks to balance risk, duration, return objectives, and meet the expected financial goals of the pension plan. It is generally believed that the most important ingredient for the successful performance of a pension plan is proper asset allocation, not the selection of individual investments.

Different funds have different risk profiles. A fully mature fund with high cash requirements would not want to invest 'in illiquid real estate for a long period of time. Alternatively, a small fund may not want to undertake the risk of development because it may not have sufficient assets to cover both its future funding requirements and to insure against the risk of a development-oriented investment.

All investment policy and investment guidelines should consider the following issues:

> The investment must fit within the pension plan's overall investment portfolio strategy, including the overall diversification of the portfolio;
> The investment must meet the plan's financial and timing needs, i e., it must consider the need for liquidity and overall return of the plan and take into account the plan's funding objectives;
> The risk of loss and the opportunity for gain must be favorable, relative to other investments;
> Counsel for the trust must, with the assistance of outside consultants if the investment is in a specialized area, draft investment guidelines that take into account all of the financial, economic, and actuarial facts.


Real estate investment parameters should establish the portfolio's expectations for such investments. They should require the pension plan to evaluate the following factors:

> Debt or equity investments;
> Public market and private investments;
> Size of each investments;
> Location and economic diversification;
> Product type and effect on the diversification mix;
> Age of the particular product;
> Long-term yield hurdles, both on a cash ,and appreciation return basis;
> Current cash return expectations;
> Length of lease terms;
> Diversity of tenant mix;
> Borrower/tenant creditworthiness;
> Need for construction or permanent loans;
> Risk criteria of investment;
> Degree of investment liquidity and degree of risk; and
> Investment life cycle issues.

Plan trustees and their counsel must understand the relationship between risk and return. A risk-averse "core" strategy produces returns that are low in volatility and high in stability, but on average, it generates a low real rate of return (say 5-6%). Value added and opportunistic investments offer greater return but they have greater volatility and are therefore more risky. Five exhibits at the end of this article may help lawyers and trustees understand and develop a viable investment strategy:

> Exhibit 1 outlines the characteristics of a "core," "value added," and "opportunistic" investment that trustees need to consider when defining an investment strategy
> Exhibit 2 outlines various real estate, stock, and bond risk-return expectations.
> Exhibit 3 breaks down the equity and debt market within the public and private market universe.
> Exhibit 4 outlines the risk-adjusted r turn characteristics of different investment vehicles.
> Exhibit 5 outlines different real estate investments' return expectations.

Although every board of trustees would like to believe that it has developed a "compelling" investment strategy for the plan, boards must address other investment issues as well. Not only must the fund follow a strategy that fits within the plan's overall risk and return expectations, the board must select an investment manager with staff and infrastructure to implement their chosen investment strategy.


A pension plan must give a great deal of thought to whether the fund should invest in a commingled vehicle or create a separate account. A separate account gives the fund much greater control over the investment decisions while the commingled fund allows for broader participation in a larger, More diversified pool, but at the cost of control. The format and ownership vehicles that it utilizes for its real estate investments is also an important issue to consider. The various vehicles offer different degrees of control, liquidity, liability, decision-making and limitation on losses. Trustees must therefore carefully evaluate the benefits and detriments of all the forms of real estate ownership vehicles:

> Separate account or commingled funds;
> Public versus private real estate investment;
> Title holding corporations;
> Group trusts;
> Limited liability companies;
> Limited or general partnerships- and
> Joint ventures.

In order to assist trustees to select among vehicles, counsel must be very knowledgeable about the tax, ERISA, and corporate operating structure of each of the various vehicles and understand the pertinent state laws in various locations. They must be aware that some of these vehicles are subject to onerous tax and operating conditions.


How much discretion should trustees grant to an investment manager. An investment manager with a non-discretionary account may not make investments on behalf of the plan without the approval of the trustees or a designated third party. Deciding that the manager shall not have discretion imposes a great deal of responsibility on the trustees who then become directly accountable for reviewing and participating in all real estate investment decisions. This responsibility exposes the trustees to significant legal liability under ERISA and should be undertaken only after thorough evaluation of the risks.

A fully-discretionary account takes investment discretion from the trustees and gives it to the investment manager. In practice, most pension plans give managers full discretion to act pursuant to guidelines set forth in their Investment Management Agreement.


Once a plan has established investment guidelines, it must develop a procedure for selecting a real estate investment manager and document the selection criteria in its records.

The trustees and/or third party consultant should examine the qualifications of a number of investment managers whose expertise is consistent with the plan's current or proposed investment guidelines and have the ability to implement the enunciated investment strategy. Each prospective manager should be asked to provide and document information about itself, its officers and directors, and the professionals who will be involved in handling the account.

The data supplied should include, but is not limited to, the following items:

> The manager's qualifications pursuant to Section 3(38) of ERISA;
> Its business structure, financial condition and affiliations;
> Its proposed investment style and process;
> Its identity, experience and qualifications-
> Its history of litigation or enforcement actions and a list of anticipated litigation in which it may be involved;
> Its experience and performance record, including managing other tax-exempt and employee benefit plan assets;
> A history of its use of third-party services, and a statement of anticipated relationships, specifying the types of transactions for which it would use such affiliates and the financial arrangements with such entities;
> A statement of its procedures for complying with ERISA's prohibited transaction restrictions. (The candidate must indicate whether the firm is a qualified professional asset manager (QPAM).);
> The candidate's ERISA bonding status;
> A statement about the fiduciary liability (or other) insurance available to protect the plan in the event the manager breaches fiduciary duty;
> A proposed fee structure;
> Client references;
> The total amount of assets under its control; and
> Any other relevant information.

The pension plan should ask the DOL and the Securities and Exchange Commission whether any enforcement actions have been initiated against the proposed investment manager, its officers or directors, or its investment professionals who will be assigned responsibility for the plan's account. It should verify all information provided by candidates with reliable independent sources. After the trustees review the qualifications of each candidate, the plan should select the manager or firm who are most capable of serving its interests. Trustees have a tendency to select management firms because they like the principals. They should be cautioned to hire the best manager, not the one with the best golf handicap. After consulting with counsel, the trustees and the selected manager should enter Into an Investment Management Agreement that documents the relationship between the parties and sets forth the terms and conditions of the investment manager's engagement, including the pension plan's right to terminate it. The funds' investment guidelines should be made a part of this document.


Once they have selected a real estate investment manager, the trustees must set up a monitoring system to ensure compliance with ERISA and the plan's investment guidelines. It is recommended that the following reviews occur at least quarterly:

> A review of the portfolio for compliance with investment guidelines;
> A review of the quarterly report to compare it to information provided by the plan's custodial trustee, including the statement of transactions;
> A review of the real estate valuation basis;
> Computation of quarterly rates of return on an overall basis;
> Comparison of quarterly investment results with appropriate indices or benchmarks and
> Verification of the fee computation.

The following reviews should be undertaken annually:

> Review of the plan's cash management and short-term investment procedures and performances and the overall performance of the custodial trustee(s);
> A meeting with each investment manager to review investment performance and any significant changes in corporate or capital structure, investment style, investment process and professional staff; and
> A review of procedures for communicating information regarding investments and investment managers' performance to the trustees, the plan's staff and the plan's service providers (attorneys, actuaries, and custodial trustees).


Pension plans must regularly "mark" their real estate investment assets "to market," so that their accounting statements reflect their current Market value. Because most pension plans invest in non-public market real estate, marking the assets to market on a regular basis enables the trustees, the DOL and other concerned parties to do the following:

> Determine whether the plan is property funded;
> Ascertain whether the plan has sufficient assets to meet current liabilities;
> Calculate the internal growth rate of plan assets necessary to meet future benefits;
> Determine the contributions required to meet the plan's current and future needs; and
> File Form 5500 with the Internal Revenue Service.

Many pension plans have not properly valued and marked to market their real estate assets. Consequently, only when they sell or dispose of an asset is the asset's "true value" ascertained. If the trustees failed to value assets annually during the holding period, and the liquidation price is lower than the amount at which the investment was carried on the plan's books, the trustees become acutely aware of their exposure.

Given the sharp downward valuation of real estate assets during the depressed real estate market of 1990 to 1994, the DOL, is concerned that pension plans may not have properly re-valued many assets. The decision to mark down asset values is difficult to make because the trustees, administrators, chief investment officers and others who were responsible for the acquisitions are placed in political jeopardy.

More importantly, pension plans that are under-funded as a result of such markdowns encounter immediate financial problems that can be rectified only by additional contributions. Those contributions must come out of someone's pockets - from taxpayers or participants in the public pension plans, the dividends and profits of corporate plans, or, in the case of Taft-Hartley multi-employer pension plans from wage increases.

It is difficult to mark to market investments in private real estate assets. Unlike stocks and bonds, which are traded in an active market, real estate cannot be valued on a daily basis. Market value must be estimated using one or a combination of professional appraisers' traditional approaches:

> The Income Approach. The appraiser derives a value indication for an income producing property by discounting anticipated benefits (cash flows and reversion) into a present value.
> The Sales Comparison Approach. The appraiser derives a value indication by comparing the property to similar properties that have been sold recently and adjusting the sale prices of the comparables based on the elements of comparison.
> The Cost Approach. The appraiser derives a value indication by estimating the cost to replace a structure and making the following adjustments: deducting accrued depreciation, adding land value, and adjusting the indicated value for the interest being valued.


To comply with ERISA guidelines on valuation and to protect against a DOL review, the investment manager and pension plan should establish three types of formal (written) guidelines.

> Procedures governing the external appraisal process, including the interaction between the manager and the independent appraiser;
> I Procedures governing internal valuations; and
> Investment management guidelines that specify the timing and management of the appraisal process.

Internal valuations should certainly be done annually, possibly quarterly, and an external appraisal should be done every one, two or, at least, three years.


An external appraisal is performed by an independent appraiser hired by the pension plan or the investment manager. The need to use an external appraisal varies among pension plans because of the different degree of participation in the valuation process by the trustees of different plans.

Pension plan trustees should choose an outside appraiser who has appropriate certification and a designation from a credible national appraisal organization. Appraisers who value commercial property are usually members of the Appraisal Institute and have that organization's MAI designation. However, in addition, it is important that trustees evaluate each appraiser's applicable experience and education.

Although outside appraisers should arrive at their value estimates independently, appraisers often submit drafts to managers finalizing their valuations. An appraiser may find it beneficial to consider the manager's recommendations for modifications because managers usually have intimate knowledge of the property. If an appraiser and a manager disagree about estimated value, the manager may appeal the appraiser's final report to the plan trustees. On the other hand, collaboration between managers and appraisers weakens the principle of independent outside appraisal and opens the parties to charges of valuation manipulation. It is therefore important that the plan have a written appraisal review procedure and the parties comply with its requirements. The standards of professional ethics to which members of the Appraisal Institute must adhere are designed to reduce any potential of valuation manipulation between a manager and an appraiser.

Trustees should examine outside appraisals carefully and use the following checklist to determine whether the appraisal method is appropriate:

> When the appraiser uses the sales comparison approach, does the appraisal consider current sales of similar properties in the market? Appropriate comparables should consist of sales that occurred less than a year earlier. However, in markets that have limited activity, the appraiser may be compelled to use older comparables.
> Does the appraiser include a cost approach? If so, is it a full cost approach analysis that considers the building's functional obsolescence?
> Does the appraisal of a property that is less than 100% occupied take into account the low rate of occupancy? Appraisals are sometimes inappropriately based on a stabilized 90% to 95% occupancy rate with no deductions for lost income during the time required to lease up the building.
> How does the appraisal estimate compare with the property's asset valuation for tax purposes? An appraisal value may be significantly higher than the assessment for a variety of reasons, but trustees should be cognizant of the discrepancy.
> Are there biases in the valuation? Are assumptions consistently conservative or aggressive?
> In the income approach calculation, among the most important areas of concern are the absolute levels and the relationships between the capitalization rate, discount rate and growth rate. Unless the appraiser has reason for treating them otherwise, the discount rate should equal the capitalization rate plus the market growth rate.


The investment manager is usually responsible for the preparation of internal valuations. Usually these are prepared using an 'income approach that utilizes two valuation calculations: discounted cash flow analysis and direct capitalization analysis. The sales comparison approach supports the valuation derived by the income approach. Often, the internal analysis supports the income analysis approach with a sales comparison analysis. Most investment managers rely upon discounted cash flow analysis because of its flexibility and its ability to model complex cash flows. The direct capitalization method is acceptable, however, for valuing a property with stabilized occupancy and a bond-like income stream that is subject to minimal competitive factors.

The written policy for internal valuations should include review of the previous valuation and/or appraisal market observations and assumptions. Furthermore, investment managers should review and sign off in writing on updated valuation models and valuations, and the investment committee or some other senior peer review board should sign off on all valuations. The following is a sample checklist for an internal valuation model:

> Review and accept revenue assumptions;
> Review and accept average effective vacancy and expense ratios;
> Review and accept absorption assumptions;
> Review and accept capital expenditure assumptions;
> Ensure that cash flow model assumptions match lease terms and desired assumptions; and
> Obtain sign-off from the real estate analyst, asset manager, portfolio manager and investment committee.


The DOL's current reviews target real estate investment account operations and compliance with governing agreements and guidelines. To avoid technical violations, investment managers should periodically assess compliance with investment management agreements and investment guidelines, notably the provisions relating to advisor fees, distributions and withdrawals. Investment account data should be frequently reported to the trustees and to the custodian, and trustees must remain mindful of the need to ensure proper operational controls.


Each pension plan must establish appropriate cash management policies for their real estate 'investments. Idle cash does not earn interest or provide a return to the plan. Audit procedures for each account must be evaluated to ensure proper compliance with overall fund needs and guidelines. In addition, the proper tax filings for the ownership entities and/or the investment must be carefully considered and documented in this process. It is also important to ensure that proper procedures are put in place to account for investments, distributions, additional capital contributions, financing procedures and similar items. Procedures must be in compliance with the needs of the fund and otherwise provide essential information to the trustees of the pension plan as well as its professionals.


The DOL currently evaluates the managers of each real property asset on a day-to-day basis, and it is concerned with the guidelines that govern their activities. Many investment managers hire third-party unaffiliated property managers for these responsibilities. However, some investment managers are integrated companies with property management personnel on their own staffs. Investment management agreements and 'investment guidelines obviously provide top-level governance, but it is useful to have written policies and procedures in the following areas:

> Who approves a lease and under- what conditions?
> How is a prospective tenant's credit rating evaluated and deemed acceptable?
> What is the process of selecting a service provider?
> What are the annual budgeting criteria?
> How are capital dollars expended?
> Who approves the use of outside vendors?
> What method is in place to control cash disbursements?
> What is the timing of preparation and submission of property management reports and other documentation?


Many real estate investment managers are affiliated (directly or indirectly) with property managers, leasing brokers, appraisers, contractors, and the like, all of whom receive fees for their services.

Because of the interest conflicts inherent in using an affiliate of the investment manager, the DOL's rule of thumb is to avoid the relationship if possible. If the investment manager does employ its own affiliate, it should proceed with extreme care and ensure that each activity performed by the affiliate is as "arm's length" as possible. Trustees must verify whether and under what circumstances an investment manager uses its affiliates, including how the affiliate's fees, work efforts, and evaluation process are to be controlled. It is also important to note that ERISA's parties-in-interest provisions require that trustees specifically approve and be responsible for the use of any investment manager affiliate.


In developing a real estate portfolio, pension plan trustees need to be mindful that ERISA prohibits pension plans from dealing with their parties-in-interest. A pension plan cannot purchase, sell, or lease property to or from a party-in-interest or hire a party-in-interest to provide services. Trustees are personally liable for party-in-interest and other prohibited transactions unless they have a class exemption. This complex arena may trap the unwary.

A most useful exemption to the parties-in-interest rules is PTE 84-14, known as the QPAM exemption, which permits investment managers that are banks, insurance companies, or registered investment managers who meet certain tests to negotiate investment terms and evaluate whether a plan should enter into a transaction that is otherwise prohibited. The QPAM exemption sets forth net worth and minimum assets under management requirements as well as several other conditions designed to ensure a QPAM's independence from a plan and its parties-in-interest. For example, it denies relief for transactions with a plan representing more than 20% of the assets managed by a QPAM or with a party-in-interest that either has the ability to hire or fire a QPAM or negotiate its fees, or has done so within the past 12 months.

Plan trustees must be mindful that dealing with a party-in-interest is a gross breach of fiduciary duty and should be avoided at all costs, absent a truly independent third party QPAM imposing itself between the plan and the party-in-interest. The DOL recently stated in an advisory opinion that an investment manager that meets all of the statutory requirements of a QPAM but was hired solely to oversee a single real estate transaction (e.g., a sale or purchase between a party-in-interest and the plan) and has no other past or anticipated advisory relationship with the plan does not satisfy the independence requirements of the QPAM exemption.


This article provided a checklist for lawyers who represent tax-exempt entities subject to ERISA, when their clients acquire real estate investments. Lawyers can rest assured that their clients can operate a relatively audit-free portfolio if they follow this checklist and ensure compliance with the investment process. An investment's failure is difficult enough from the plan participants' financial perspective; trustees do not also want to face the DOL breathing down their necks and suing for restitution of any lost investment as a result of non-compliance with the investment parameters outlined in this article. Once trustees verify compliance, they can sleep better knowing that the DOL will not assert that they failed to exercise their responsibilities prudently. Additionally, a well thought through investment process and careful monitoring of the investment manager and the investment process will generally provide a further economic benefit, since it is likely to result in fewer bad real estate investments and more sound investments. Likewise, lawyers who comply with these simple procedural requirements will also sleep better knowing that they will not be sued for legal malpractice.

ERISA is primarily codified at 29 U.S. C. S1001, et seq., (and in the Internal Revenue Code of 1986, as amended).
The standard benchmarks for real estate, depending on whether the investment is debt or equity, typically consist of the NCREIF Property Index, the IPC Portfolio Index, the Berkshire Barnes Mortgage Index Series, the Giliberto Levy Commercial Mortgage Performance Index and the National Real Estate Index.


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