Sep 24, 2019
Managing a company retirement plan by committee is not required by the IRS or the Department of Labor. But many plan sponsors find that setting up a plan committee is the best way to manage their fiduciary responsibilities and maintain compliance with the rules governing retirement plans. Whether it is beneficial for your business to have a plan committee depends upon certain variables, including the size of your company and your plan. A committee may not be manageable for small businesses because it creates unnecessary formalities for a small number of people. On the other hand, having a group of staff members participate in overseeing the plan can help you ensure prudent decision-making and share fiduciary responsibility.
What Are My Fiduciary Responsibilities?
Under federal law (the Employee Retirement Income Security Act of 1974 (ERISA)), anyone with discretionary authority to manage a qualified retirement plan or plan assets is a fiduciary. The business owner typically has overall fiduciary responsibility for the plan, including overseeing plan investments and plan administration. An ERISA fiduciary must follow strict standards of conduct when performing their plan duties to ensure that participants’ interests in the plan are protected.
Fiduciaries must:
- Put participant interests first and base decisions solely on what’s best for the participants – not the fiduciary
- Carry out duties with the care, skill, prudence, and diligence that a prudent person familiar with the matter would use – hire experts if you don’t have the knowledge required
- Diversify plan investments – you need to reduce the risk of large losses to plan assets
- Follow the plan document – make sure plan operations match the terms selected in the plan document
- Ensure only reasonable fees for necessary services are paid from plan assets – make sure fees for investments and administration, which are typically debited from participants’ accounts, are not excessive
- Avoid all conflicts of interest
You can be held personally liable if you do not follow these standards of conduct. Plan participants have the right to initiate lawsuits to recover losses caused by fiduciary wrongdoing and the DOL has authority to enforce the rules through civil and criminal actions. Under ERISA, fiduciaries may be required to make up any losses resulting from a breach of their fiduciary duties and restore to the plan any profits made by the fiduciary in connection with the breach.
How Can a Plan Committee Help?
The keys to satisfying your fiduciary responsibilities under ERISA are to establish a due diligence process for making decisions about the plan and documenting the actions you take. Assembling a plan committee can be an effective method for managing the fiduciary responsibilities associated with a retirement plan because it formalizes the decision-making process.
Some of the benefits that weigh in favor of having a plan committee include:
- Sharing fiduciary responsibility for investment oversight and plan administration with decision-makers who have varied areas of expertise (e.g., finance, human resources)
- Regularly scheduled meetings create the discipline to follow due diligence processes
- Maintaining records of committee meetings will help document the prudent processes followed
Do Committee Members Need Special Training?
One of the most important aspects of operating an effective plan committee is making sure committee members understand their duties. The level of orientation and training that may be needed will vary depending upon the experience level of each member and the scope of their responsibilities. All committee members should:
- Be familiar with the business objectives for establishing the plan and any plan goals such as participation or savings rates (This framework can help guide decisions in the same way an Investment Policy Statement can help guide decisions about selecting or adjusting plan investments.)
- Have a clear understanding of the scope of their authority and their liability as an ERISA fiduciary
- Understand the terms of the plan document and the purpose for certain plan design selections
- Be apprised of the service provider relationships and plan fee arrangements
Most plan committees also arrange for ongoing education to keep the committee up to date on regulatory changes and new product developments that may affect the plan.
What Steps Should I Take to Establish a Plan Committee?
If you choose to establish a plan committee, one of the first steps is to have your business authorize the committee (e.g., board resolution) and appoint members. Some committees have both permanent members (e.g., CFO, human resources staff) and rotating members.
Once the committee members have been appointed, it is a good idea to set a framework for how the committee will operate in the form of operating policies or bylaws. Topics to consider addressing in the operating policies include the purpose of the committee, the scope of authority it will have over plan matters, and the frequency of meetings (e.g., quarterly, semi-annually). You may also want to define the roles and responsibilities of certain members (e.g., appointing a secretary to keep minutes).
When the committee is formed, set a schedule for regular meetings and establish a structured agenda for each meeting. Topics covered at meetings generally include:
- Legislative and regulatory updates
- Plan investment review
- Operational issues and compliance deadlines
Where Could I Get Assistance?
Your retirement plan advisor can play an active role not only in providing investment expertise, but also in helping you establish a committee, educate committee members, and develop an effective meeting structure. As you evaluate whether it might be beneficial for your company to form a plan committee, talk to your financial advisor or plan consultant to identify the support services they can provide such as:
- Providing foundational fiduciary education
- Benchmarking fees
- Monitoring plan performance metrics (e.g., participation and savings rates)
- Identifying meeting agenda topics
- Acting as gateway to other experts (e.g., legal or accounting)
- Developing an Investment Policy Statement (IPS)
- Helping maintain records of fiduciary education and plan meeting activities
- Providing ongoing regulatory and industry updates
Newport Group Solution: Newport Group is your full-service retirement plan provider. If you have any questions about your plan, from administration to plan design and documentation, please contact your Newport Group Representative at 855-751-2127 or info@newportgroup.com.
Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services.
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