By Mark Olsen, Managing Director at PlanPILOT
While plan committees normally have the best of intentions in administering the employer retirement plan, common missteps often arise from a lack of proper design and full understanding about the requirements of a successful and well-functioning program. These include the lack of formal structure, inadequate documentation of decisions, and insufficient oversight of plan operations and service providers.
In our long experience at PlanPILOT, adopting best practices for governance, documentation, and expert consultation can significantly mitigate fiduciary risk for plan sponsors, streamline administration and oversight processes, and improve plan health for participants.
Let’s explore what may be overlooked and steps committees can take to correct these issues.
Common Missteps
- Failure to formalize the committee: Operating without a formal committee structure or charter leads to confusion over roles, responsibilities, and decision-making authority.
- Lack of fiduciary training: Committee members may not fully understand their personal fiduciary responsibilities and potential liabilities under the Employee Retirement Income Security Act (ERISA), assuming third-party providers handle all risk.
- Inadequate documentation: Failing to maintain detailed meeting minutes that record discussions, decisions, and the rationale behind them leaves the committee vulnerable in audits or lawsuits, as it cannot demonstrate a “prudent process.”
- Ignoring plan documents: Operating the plan inconsistently with the terms outlined in the official plan document (e.g., incorrect compensation definitions, not following loan rules) is a common operational failure.
- Infrequent or nonexistent meetings: Irregular meeting schedules or “committee collapse” indicates a lack of commitment and makes it difficult to conduct regular oversight and address issues promptly.
- “Set it and forget it” mentality: Neglecting to regularly benchmark fees, review investment performance, or stay updated on legislative changes (like the SECURE Act) can result in excessive costs or underperforming options for participants.
- Failure to use experts wisely: Not leveraging external experts (advisors, legal counsel, actuaries, plan consultants) for specialized guidance, or allowing internal current committee members to control the entire process (e.g., running their own RFP), can lead to conflicts of interest or missed opportunities for improvement.
Best Practices for Improvement
- Establish a Formal Committee and Charter
- Formalize the committee’s existence, purpose, size (ideally 3-7 members), and the specific roles/titles of members (e.g., CFO, HR Director) in a written committee charter or bylaws.
- Ensure the charter defines authorities, operational procedures, and a process for removing inactive members.
- Prioritize Fiduciary Education and Training
- Provide initial orientation and ongoing, regular training (perhaps quarterly) to confirm all members understand their fiduciary duties and stay abreast of regulatory changes.
- Consider obtaining fiduciary liability insurance for an added layer of protection.
- Implement Rigorous Documentation Procedures
- Designate a secretary to take comprehensive meeting minutes to document all topics discussed, data reviewed (e.g., benchmarking reports), decisions made, and the reasoning for those decisions.
- Retain all supporting documentation and records consistently.
- Adopt and Follow Key Documents
- Create and adhere to a well-defined Investment Policy Statement (IPS) that outlines investment objectives, risk tolerance, and performance benchmarks.
- Verify all plan operations align with the official plan document; conduct annual reviews to confirm compliance.
- Establish Regular, Structured Oversight
- Schedule meetings at least quarterly using a consistent agenda to ensure key areas like investment monitoring, fee reviews, and compliance updates are covered.
- Run test files and perform quarterly spot-checks on payroll data to prevent common errors like late deferral deposits or incorrect eligibility/compensation calculations.
- Leverage Expert Consultants and Providers
- Engage external, credentialed experts (e.g., a 3(21) or 3(38) investment advisor) to assist with complex tasks and provide objective insights.
- Conduct a full Request for Proposal (RFP) process for recordkeeping and other services every 3-5 years to ensure fees remain competitive and services are adequate.
- Promote Transparency and Diversity
- Verify the committee’s composition is diverse (across functions, levels, and demographics) to bring different perspectives and better represent the participant base, depending upon company objectives and employee demographics.
- Implement clear processes for communication with the board of directors and plan participants.
How to Determine the Health of Your Plan Committee
Waiting until underlying issues become readily apparent and harmful is usually a recipe for bigger problems down the road, especially if your plan and committee functions haven’t been assessed in a long time. ERISA and IRS regulations change often, so keeping your plan up to date is essential to avoid violating fiduciary duties and maintaining effective plan governance. Scheduling a review with an experienced plan consultant could reveal important gaps in plan design or functionality.
How Well Does Your Plan Committee Function?
No one likes to discover issues with plan oversight, but knowing your plan and plan committee is well-designed, compliant with ERISA regulations, and operating smoothly can provide confidence and assurance that the result of a DOL or ERISA audit will likely be a “No Violation” closing letter.
At PlanPILOT, we’re creating the standard for client experience. Independent and impartial by design, we apply our skill to each facet of plan development, governance, and implementation to help you enjoy meaningful results. Our client partnerships are built on trust, communication, and responsibility—cornerstones of a healthy, prosperous relationship. We’re committed to providing objective guidance, informed innovation, and an integrated approach tailored to your unique objectives.
Our team of seasoned professionals upholds the highest professional standards, so every strategy we recommend aims to support both your organization and the participants who depend on it.
Reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.