How to Establish a Strong Investment-Focused Plan Committee

As a retirement plan sponsor, one of the biggest steps toward ensuring regulatory compliance includes establishing a committee to manage the plan. Meanwhile, setting forth clear objectives and direction for the composition and function of your retirement plan committee can be the key to its success. Learn more about some standard objectives and responsibilities for your fledgling committee, with a specific view towards its investment responsibilities, as well as some structuring tips you’ll want to keep in mind when just getting started.

Committee Objectives

While you may already have a benefits committee—one that selects and reviews the plan benefits and design as well as manages administration issues and employee communications—a committee has a different focus from an investment oversight perspective. At the broadest levels, the investment oriented committee’s main objectives are to establish an investment selection process, implement investment decisions, analyze offerings and expenses and make changes where warranted.

Committee Responsibilities

These broad objectives can be broken down into a more manageable list of responsibilities.

One of your committee’s first orders of business should be to review, modify, and approve the committee charter, which will officially provide the committee with the authority it needs to take fiduciary action on behalf of the retirement plan sponsor. The committee should also develop an investment policy statement and create and approve due diligence procedures based on current federal regulations, as these two documents will guide a majority of the committee’s actions and decisions.

Once the committee has taken these preliminary steps, its main responsibilities include:

• Selecting, monitoring, and removing investment managers,
• Evaluating manager’s performance and taking appropriate actions,
• Reviewing investment fees that are being charged to the plan and plan participants, and
• Carefully documenting meeting minutes, decisions made, and actions taken.

Committee Structure

The investment committee should be structured in a way that both makes logistic sense (for instance, having an odd number of members to reduce the risk of “tied” votes) and reflects a diversity of experience and knowledge. When drafting your committee charter, you’ll want to set forth the member selection and retention process for all committee members, as well as specify whether any organizational roles (such as the Chief Financial Officer) should enjoy a permanent seat on the committee. Making these decisions up front and putting them in writing will eliminate one of the biggest potential sources of conflict down the road.

When determining who should serve on the investment committee, here are a few factors to define:

• Size: The size of your committee can depend on the size of your plan. However, it should be large enough for diverse points of view, but not too large to enable consensus. As we mentioned, it should be an odd number to prevent a tied vote. We believe the optimal number should be between 5 and 7 committee members.
• Diversity: It’s important to include varying perspectives when representing the plan and its  participants best financial interests. Committee members should include members from human resources and finance along with legal and accounting members. It may also be beneficial to include a representative for plan participants.
• Investment Focus: Roles that understand the capital markets such as the CFO or VP of Finance should lead the committee membership. It could be beneficial to delegate fiduciary investment management to a 3(38) advisor.
• Terms: The investment committee should be comprised of permanent and rotating members so as to encourage fresh perspectives. Non-permanent members should be appointed (and rotated off) in alternating years to avoid losing important investment decision history and committee-member burnout.

Thorough Documentation

Permanent and rotating committee members should complete an acknowledgment and acceptance of the position and duties as they are added. The federal laws and regulations that govern retirement plan sponsors are strict, and it’s crucial that all committee members are aware that any inexperience or lack of oversight will provide no legal protection to the committee if there is an alleged breach of its fiduciary duties.

Upon their appointment, committee members should receive copies of the investment policy statement, the committee charter, applicable federal regulations, and any other documents that will help them perform their role to the best of their abilities. We encourage developing a fiduciary handbook and on-going training on legal and regulatory matters.

Committee Meetings

Before your investment committee begins conducting meetings, it’s prudent to outline, in writing, the structure of the meetings, this includes the frequency, location and agenda. Most investment committees meet either quarterly or semi-annually, setting the dates in advance and with agendas circulated prior to each meeting. The agenda should be structured efficiently and should include the topics up for discussion, outstanding items from previous meeting, and reasonable timeframes.

Thorough Documentation

During the meeting, a designated member of the investment committee should document who attended, the matters discussed, considerations reviewed, and final decisions made in the meeting minutes, which—like the agenda—should be distributed to the committee to ensure that all members are on the same page. Any action items should be highlighted and assigned so that nothing inadvertently slips through the cracks.

During your meetings, you’ll want to discuss the following agenda items, among others:

• How current investments are performing and how this performance lines up with your investment policy statement benchmarks;
• Whether there have been any changes in federal regulations governing the committee’s work and what those changes are; and
• How the economy is faring (e.g., are there signs of an impending market correction or recession? If so, should the committee seek out more stable investments?)

Answering these questions can keep you in compliance with regulatory requirements and ensure your committee is being proactive when it comes to preserving investment value.

Work with an Independent Investment Manager

When you’re ready to get establish an investment committee or implement changes to your current team, an ERISA 3(21) or 3(38) investment manager can help. PlanPILOT provides comprehensive retirement plan advisory services to a wide range of plan sponsors, minimizing fiduciary risk and promoting positive participant outcomes. As an independent Registered Investment Adviser, PlanPILOT is not tied to any investment fund or record-keeper. We offer clients unbiased advice and assistance to control their retirement plan risks and deliver benefits effectively. We encourage you to contact us at (312) 973-4911 or info@planpilot.com.

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