Editor’s Note: This is the first of a two-part series about establishing and managing retirement plan committees.
The last 10-plus years have brought into sharp relief the importance of fiduciary duties and fulfilling them as ERISA requires. Offering a retirement plan has many moving parts, and some plans form retirement plan committees to keep them running smoothly. A white paper offers best practices concerning such committees.
Retirement plan committees are useful not only in meeting the letter of ERISA, but also its spirit — serving the plan itself, as well as plan participants and their dependents and beneficiaries. “In virtually all instances, sponsoring a retirement plan creates work for employers. Deciding how to allocate and discharge the tasks that arise out of plan sponsorship is foundational to the successful and compliant operation of the plan. Creating an effective retirement plan committee that is devoted to the prudent management of the plan will usually help plan sponsors ensure that their fiduciary obligations are discharged appropriately,” writes the Multnomah Group in “Retirement Plan Committee Best Practices, Simplified.”
Their take on best practices to keep in mind when creating and running a retirement plan committee includes the following.
Membership. Ordinarily, says the paper, a board of trustees nominates individuals to serve on the committee “who can confidently be expected to understand and respect ERISA’s fiduciary principles.” The paper suggests that a nomination include an explanation of the fiduciary obligations and liabilities implicit in accepting a committee appointment.
The committee members:
- need not be experts concerning plans nor investments;
- should in some way be qualified and willing to work together to make sure that the standards of ERISA sets are met;
- can come from the employer’s human resources, finance, business affairs and legal departments, as well as others;
- may be appointed permanently or for a specific term;
- may resign from the committee; and
- may be replaced if necessary.
Committee members become plan fiduciaries, the paper notes, the board may choose to indemnify committee members from personal liability they could face.
Size. The size of the committee “often reflects the size and complexity of the plan itself,” says the paper – large plans may need larger committees, and some employers may need to create subcommittees to handle specific plan-related responsibilities.
Charter. The paper suggests that a board would be “prudent” to create a committee charter that sets forth:
- the reason for its existence;
- its objectives;
- its responsibilities;
- its structure;
- frequency of meetings;
- allocation of fiduciary responsibilities; and
- how the plan will be governed.
Document. The paper suggests that committee meetings be documented in minutes that the committee reviews and approves. It also suggests that the plan’s overall investment strategy be documented in a written investment policy statement.
Even though a retirement plan committee may exist, it does not have final responsibility for meeting fiduciary duties related to the plan, the paper reminds. “Most often, a plan sponsor’s board of trustees, directors or regents is ultimately responsible for fiduciary obligations associated with plan sponsorship,” says the Multnomah Group, adding, “Delegation of responsibilities to a retirement plan committee alone does not discharge those obligations.”
Because of that, the paper argues that the board must choose committee members carefully and make sure that the committee’s activities are reported to the board or its designated officers.