Key Components of an Effective Retirement Plan Committee

An organized, well-managed retirement plan committee is a key foundation of a successful retirement plan. Forming an effective retirement plan committee not only fosters more diverse ideas and opinions, but it also challenges the status quo to create and maintain a more thoughtful plan. For this reason, an important first step in fulfilling plan governance requirements is to establish and operate an effective retirement plan committee.

Why Your Retirement Plan Committee is Important

Every retirement plan is controlled by a governing document, and the document is only as successful as its decision-making group making and implementing decisions —the retirement plan committee. The committee is responsible for enforcing this document and fulfilling the plan’s goals. Many organizations choose to form a committee to manage their retirement plan, as having a diverse range of perspectives often leads to better results versus one individual managing all the duties and decision-making. However, an apathetic or inexperienced committee could jeopardize your employees’ retirement plan options or risk the plan’s status with the IRS, DOL or ERISA. Below, we review the key components of an effective retirement plan committee.

Building the Retirement Plan Committee

There is no one-size-fits-all approach to building a retirement plan committee. Creating your committee depends on the size and demographics of the plan and employee population. However, to achieve the most cohesive and efficient committee possible, plan sponsors should look to a couple of key components.

Size

What constitutes the right size for a committee can depend on the size and goals of the organization itself. A large committee may provide a spectrum of perspectives and can be effective for performing many plan-related duties, but they may find it challenging to reach consensus on key issues — not to mention the challenges of trying to coordinate so many schedules to hold a quarterly meeting. However, a small committee may find themselves becoming overwhelmed by the number of decisions to be made and deadlines to be met. Many plan sponsors find that the optimal size for a committee is between 5 and 7 members who come from varied backgrounds.

Diversity

Today’s workforce is more diverse than ever. Plan committees and the decisions made must reflect this trend. A plan committee should ensure that many demographic groups within their organization are represented, not just members of the C-suite. This means maintaining social diversity (differences in age, gender, ethnicity), informational diversity (differences in education and expertise), and value diversity (differences in values, commitments, and priorities).

When evaluating prospective committee members, consider factors such as experience, work ethic, and the amount of time one has to devote to a committee. Your plan committee members should be knowledgeable, prudent, and willing to perform research on issues with which they’re not familiar or engage subject matter experts to assist. Every member in the committee will be unique, but they should share the common goal achieving the best outcome for the organization and their plan participants.

Leadership

Your plan committee will benefit from having strong leadership. The appointed leaders set agendas, stay up to date on legal and regulatory changes, and keep the committee on track. It is best practice to appoint a Chairperson and Secretary to carry out the committee’s mission; the Chairperson will facilitate meetings and monitor the committee’s compliance with its governing document(s), while the Secretary will document committee business and distribute notes and records to committee members (and plan participants) as needed.

Establishing Your Committee Charter

Because the composition of your committee will naturally change over time as people rotate into (and out of) certain key positions, having a committee charter as a guidepost can maintain the objectives and goals of your plan. This charter document should include pertinent information, such as:

• A reference to the plan’s Investment Policy Statement, which sets forth the goals of the retirement plan’s investments;
• The composition of your committee (e.g. mandating that the CFO, COO, or HR Director have a permanent seat);
• Whether members are subject to a term of years (and, if so, the means by which your committee selects new members or reappoints current ones);
• How frequently your committee will meet; and
• What constitutes a “quorum” for voting purposes.

It is important for each committee member to sign an acknowledgement regarding the plan document and their duties within the committee.

Fiduciary Training

While your committee member may understand some or all of the tasks required of managing the retirement plan, they may not be fully educated on their fiduciary duties. ERISA coupled with recent litigation has proved that fiduciaries must understand their responsibilities and must act in the best interest of plan participants.

Fiduciary training should be provided to all members, especially at the onset of a new member joining the committee. Training should include reviewing key topics such as fiduciary duties and responsibilities, investment considerations, and current regulations. In addition, all plan documents and procedures should be reviewed annually (at a minimum).

Meetings

Your plan committee should aim to meet at least once per quarter, and perhaps even more frequently during times of transition or economic uncertainty. Before each meeting, the Secretary or Chair should seek input on agenda items and circulate an agenda so that all committee members can adequately prepare for what will be discussed and decided at the meeting.

Get Expert Assistance from PlanPILOT

For plan sponsors, the importance of maintaining a motivated and well-rounded plan committee cannot be overstated. An independent plan consultant can assist in the creation of your plan committee and keep it on track in the future. PlanPILOT provides efficient and comprehensive retirement plan advisory services to 403(b), 457, and 401(k) plan sponsors, minimizing fiduciary risk and providing value-added services to our clients’ plan committees. We encourage you to contact us at (312) 973-4911 or info@planpilot.com so we can help your retirement plan administration team and plan participants achieve better outcomes.

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