Extracting optimal value from a retirement plan committee requires careful attention to the committee’s governance structure, composition and operations.

Why Convene a Committee?

Although not every plan sponsor has a plan committee, establishing a panel will increase the plan’s fiduciary oversight, adding value for sponsors covered by the Employee Retirement Income Security Act and benefitting the plan, says Theresa Conti, a senior consultant at July Business Services. Conti champions the value committees can add both by educating and training people who serve on the committee and by providing educational material for participants. 

Josh Itzoe, founder and CEO of FiduciaryWor(k)s, agrees with Conti that plan sponsors add value to their plans by holding regular meetings and teaching fiduciary training. He says these are “critically important” to the sponsor’s fiduciary duty and oversight. Teaching the members of a plan committee to think about their fiduciary duties to the plan and participants will provide benefits to the sponsor, he adds.

When the committee members are properly taught to understand their fiduciary responsibility, “they understand [the] gravity of what they’re doing and [are] much more likely to be engaged [in trainings], and they’re much more likely to take steps to achieve the outcome, ultimately, they’re trying to do,” Itzoe explains.

Fiduciary regulations under ERISA demand fiduciaries act prudently and solely in the interests of participants, follow the terms of plan documents and that fiduciary decisionmaking must be based on a prudent and well-documented process, ERISA and Department of Labor regulations state. Retirement assets held in 403(b) plans for nonprofit entities that are unaffiliated to a church or government are protected under ERISA.

The presence of an ERISA attorney at meetings is important to ensure members “are staying in alignment with their obligations under ERISA,” says Joan Neri, a counsel in Faegre Drinker Biddle & Reath LLP. “I find the biggest issue sometimes is when there are meetings that are held without the attorney, and then later on, we’re looking at the minutes or trying to figure out what decisions were made.”

Committee Structure  

Neri advises that sponsors follow a blueprint to build a committee.  

The “starting point [is] to make that [governance] evaluation, present the advantages of having a committee, and then the next step is to provide the committee with guidelines on how they are to operate,” Neri says. “It is really important to have an ERISA attorney spearheading this, because these are laws and legal issues and legal responsibilities that the committee needs to understand.”

Sponsors’ biggest legal and regulatory issues often emerge when the committee members have proposed and decided a plan provision without attorneys present to provide legal guidance, Neri says. 

“[When] we’re looking at the minutes or trying to figure out what decisions were made, sometimes it’s difficult to point to anything specific that can support [why decisions were] a good fiduciary practice,” Neri explains. “The way I do [trainings is] being present at meetings and present at discussions that the committee members have.”

Who Should Serve on Committees?

Smart choices for individuals to serve on a plan committee include company leaders who also have a skill set in investment and finance, Neri advises.

Members are often individuals with titles such as CFO, vice president of finance and comptroller. The majority of a committee’s membership is often comprised of personnel with such backgrounds, Neri says.   

“They will be able to navigate not only the administrative responsibilities that go along with running the plan, but also the investment decision making, which is important,” to lessen the risk of plan sponsors being sued, she adds.   

Charting Next Steps

Once a plan sponsor makes the decision to launch a committee and has selected the members, the next step is to devise committee guidelines that outline how the panel will operate, Neri says. The plan sponsor should establish committee guidelines with a charter, similar to corporate bylaws, she explains.

“The charter will talk about the members’ responsibilities; how they are to run meetings; what constitutes a quorum; can they make decisions without a meeting? How does that work? (which is usually [by] unanimous written consent); their authority to delegate; their authority to delegate to one another once a decision is made; and how often the meeting should be held,” Neri says.

More sophisticated charters incorporate a detailed responsibilities chart that outlines different committee members’ duties in running the plan, she adds.

“What I’ve done for committees is develop a chart where I talk about the responsibility and then talk about who does what in carrying out that responsibility,” Neri says. “For instance, the plan loan responsibility might emanate from the committee, and they oversee it, but it could be that the recordkeeper is handling the actual administration of loans and maybe goes back to the committee only if there [are] certain issues. That has to be parsed out.”