Advisor Support for Plan Committee Best Practices

Sep 06, 2019

Definition of committee: a body of persons delegated to consider, investigate, take action on, or report on some matter.1

As a retirement plan advisor, you can help your plan sponsor clients with their fiduciary obligations by guiding them through the establishment of a plan committee. A plan committee considers, investigates, and takes action on retirement plan matters, and is one of the most effective ways plan sponsors can meet the procedural due diligence obligations of an ERISA fiduciary. Some of the potential benefits of using a committee to manage a retirement plan include:
  • Sharing fiduciary responsibility across a group with diverse levels of expertise and perspectives  
  • Creating the discipline and format to research and discuss plan matters
  • Maintaining records to help document the prudent processes followed in making plan decisions
Here are five industry best practices for establishing a committee that can help your clients ensure they’re meeting their fiduciary obligations.

1. Formal Process to Establish a Committee

Following a formal process to establish a plan committee can help document the plan sponsor’s intent to create a team of individuals who will share responsibility – and fiduciary liability – for managing the plan. The company should adopt a board resolution or written business authorization to establish the committee and determine who will serve on the committee (e.g., human resource manager, chief financial officer, operations manager). While financial advisors attend and play an active role at meetings, they are not a voting member of the committee.

Many committees also draft bylaws to create a framework for how the committee will operate. These bylaws may state the responsibilities of the committee and scope of authority granted to it (e.g., investment oversight only). Operating guidelines, such as how frequently the committee will meet and the minimum number of members needed to take action regarding the plan (a quorum), are also usually included. A committee may also want to specify whether committee membership is permanent by position or limited to a certain term (e.g., one or two years).  
  • Financial advisors can guide plan sponsors through the establishment process, provide expertise regarding meeting frequency and operations, and identify retirement plan experts outside the company who could provide additional support (e.g., legal counsel, accountants).

2. Fiduciary Education

Because ERISA fiduciaries are personally liable for plan losses caused by a breach of their fiduciary responsibilities, it’s important that each committee member takes their role seriously and understands their duties. Participants and other plan fiduciaries have the right to initiate lawsuits to correct breaches of fiduciary responsibility. The DOL also has authority to enforce the rules through civil and criminal actions. 

Although committee members may have varied levels of retirement plan experience, all should receive consistent and ongoing training to ensure they understand their responsibilities under ERISA, the terms of the plan, and the importance of a due diligence process for decision making. 

Financial advisors are usually the best resource for providing fiduciary education to committee members. Education topics may include: 
  • Responsibilities of an ERISA fiduciary and consequences of not meeting fiduciary standards
  • Procedures for selecting and monitoring service providers and plan investments
  • The importance of benchmarking plan investments, fees, and plan metrics 
  • Agreements with service providers and any ERISA fiduciaries providing services to the plan
  • The terms of the plan document 
  • Plan compliance requirements (e.g., nondiscrimination testing, participant disclosures)
  • Legislative, regulatory and litigation updates for the retirement plan industry
You can also help the committee by maintaining records of the education provided – including names of attendees – to document the company’s commitment to managing the plan in compliance with ERISA’s high fiduciary standards. 

3. Meeting Agendas

Effective plan committees apply a consistent and disciplined approach to each meeting. To do this, members should follow the meeting schedule outlined in the committee bylaws and have a structured agenda that addresses key issues. Essential topics typically include: 
  • Investment performance review 
  • Administrative review (operational issues, upcoming compliance deadlines)
  • Fee management
  • Industry update
A committee member should be designated to draft minutes reflecting the key decisions of each meeting and to document or store reports or materials that were used in reaching decisions (e.g., benchmarking information). You can drive this process by helping create plan meeting agendas and drafting a template for meeting minutes. 

4. Investment Policy Statements

If the committee is responsible for selecting and monitoring investments, the committee may want to adopt an Investment Policy Statement (IPS). An IPS is a written policy that typically defines:
  • Criteria for selecting and monitoring investments (e.g., performance criteria, fees)
  • Performance review timing (e.g., quarterly)
  • Criteria for adding, changing, and replacing investments in the plan’s line-up 
Although an IPS is not required by ERISA, many plan committees have found the IPS to be an effective tool in managing the investment due diligence process. If an IPS is adopted, however, the committee must be careful to follow the IPS guidelines; otherwise it could be used as evidence that plan fiduciaries failed to prudently manage their responsibilities. As the plan’s financial advisor, you can help draft the IPS and schedule regular reviews to ensure the IPS remains aligned with current plan objectives and takes into consideration new investment products and provider developments. 

5. Fee Management

Plan fiduciaries must protect the interests of plan participants and ensure that only reasonable fees are paid from plan assets for necessary plan services. Plan committees should have a process in place for reviewing service provider fee disclosures and evaluating fees charged by investment providers. ERISA litigation over the past decade has focused on allegations that plan sponsors or other fiduciaries have breached their fiduciary duty by allowing plan assets to be used to pay excessive fees for plan services or investments. 

Fee analysis is a critical component of the ongoing support you can provide to plan committees. What is a reasonable fee at one point in time may not be reasonable at a later date if there are changes to plan objectives, provider services, or retirement plan rules. In addition to helping plan sponsors analyze plan fees when initially selecting service providers and investments, you can help committees design a process for monitoring plan fees, including providing benchmarking support. You can also educate committee members about the fee structures that apply to retirement plan investments and service providers (e.g., revenue sharing) so they can make prudent decisions regarding the reasonableness of fees.

1 Merriam-Webster, Online dictionary, 

Newport Group and its affiliates do not provide tax, legal or accounting advice. You should contact your own tax, legal and accounting advisors before making any decisions.


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