The role of retirement plan committees
When it comes to plan management, retirement committees have become the norm, with 95.2% of plan sponsors reporting that they have at least one.1 One of the main reasons they’re used is to share responsibility for plan oversight. More specifically, having a committee can help you:
- Make more informed decisions as members bring different experiences, expertise, and perspectives
- Demonstrate that a prudent process was followed when selecting or removing plan investments
- Document the rationale for plan decisions and actions taken
But you shouldn’t have a committee just to have one. A retirement committee needs to be active, and committee members need to understand and be committed to their role.
Preparing a retirement plan committee charter
A good first step is to create a retirement plan committee charter. A charter defines the roles and responsibilities of the fiduciaries and service providers, including all ERISA requirements. It also establishes policies and procedures to help ensure effective management and administration of the plan and incorporates best practice considerations.
Approximately 78% of organizations have a formal document establishing their plan committees.1
A retirement plan committee charter typically includes:
- The criteria for selecting committee members, such as department representation (e.g., finance and human resources) and preferred experience, and the process for replacing them
- The process and criteria for hiring and monitoring service providers
- The frequency of committee meetings (quarterly is preferable) and which member will take meeting minutes
- The number of members needed for a quorum
Selecting committee members
Next, you’ll want to choose members using the criteria in your retirement plan committee charter. The goal is to have a diverse group of individuals, people from all levels of your organization with different expertise—chief financial officer, director of compensation, senior executives, human resources, and operations. Generally, chief executive officers don’t serve on plan committees because of the time commitment and potential conflicts of interest.
Since committee members are plan fiduciaries, it’s best to ask people if they want to join, instead of just appointing them. You want people who are willing to serve and understand the commitment they’re making. Additionally, you should consider having an odd number of participants, perhaps three to five, for voting purposes. The actual number you choose may depend on the size of your organization and the complexity of your plan.
Providing fiduciary training to members
Most retirement plan committee members know they’re plan fiduciaries, but many don’t know what that really means and that they can be held personally liable. That’s why best practice is to conduct both initial and ongoing fiduciary training. This training isn’t legally required, but the U.S. Department of Labor often asks about it during plan audits, which seems to underscore its importance.
The objective of fiduciary training is to help ensure committee members understand the magnitude of their responsibilities and the importance of following a documented process to make decisions in the best interests of plan participants.
Common training topics include:
- Who's a fiduciary?
- Key responsibilities of a fiduciary
- Potential liability
- Prudent expert standard
- Use of third-party experts
- Plan governance
- Regulatory challenges
- ERISA litigation trends
- Fiduciary best practices
Conducting committee meetings
Committee meetings are a fundamental way to show that you’re following a prudent process to make plan decisions. These meetings should be conducted in accordance with the retirement plan committee charter. Additionally, an agenda and any documents relevant to the meeting topics should be distributed in advance to give members time to review the materials and prepare any questions. To help keep the agendas manageable, you might create a schedule for when certain topics will be discussed. For example, you might review the plan’s investments every quarter, but plan design annually. This type of schedule can help keep the committee organized, but it doesn’t mean you can’t discuss issues sooner, if there’s an immediate need.
Your meeting minutes don’t have to document every conversation verbatim, but they should capture key points such as:
- Meeting date and attendees
- Issues discussed, materials reviewed, and any third-party advice received
- Decisions made and names of members who dissented or abstained
- Action items for the next meeting
Creating a template can help ensure the same information is recorded for each meeting. Copies of the minutes should be distributed to committee members to keep outstanding issues top of mind. They should also be added to the plan files for future reference and to help address any inquiries from regulators.
Monitoring your retirement plan committee
Since sponsors are usually the main plan fiduciary (also known as the named fiduciary), you should review your committee’s charter and operation at least annually. You want to ensure the terms of the charter are being followed, and that committee members understand their roles and are fulfilling their responsibilities. It’s another way to demonstrate that all plan fiduciaries are acting prudently.
Plan oversight—what retirement committees do
Retirement plans have many moving parts and involve numerous decisions, and it’s a lot for one person to manage alone. With the proper structure and right members, a retirement plan committee can be an integral part of a successful retirement plan program.
1 “Retirement Plan Committees,” Plan Sponsor Council of America, June 2021.
This is not intended to be an exhaustive review of fiduciary responsibilities of ERISA Section 404(c). It highlights key issues that plan fiduciaries must be aware of; in particular, those required to obtain relief under that section. John Hancock is not in a position to provide you with legal advice concerning your plan or your role as plan fiduciary, and the information included in this booklet should not be taken as such. If legal advice or other expert assistance is required, please consult your legal counsel.
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