Beyond the Basics: When and Why a Second Retirement Plan Committee Makes Sense

Designing a retirement plan structure that ensures efficient decisionmaking and smooth execution of initiatives is crucial for employers—but that ideal plan structure depends on many factors, including an organization’s size and needs.

While some organizations have a single retirement committee that covers decisions about the plan’s investments and administrative matters, others divide the tasks among two committees. Generally, larger organizations are more likely to have multiple committees, says Mikaylee O’Connor, a principal in PGIM’s defined contributions solutions division.

“When you’re talking about billions and billions of dollars, it’s good to kind of separate those functions, because you are going to have enough to talk about solely with investments and solely with benefits and administration,” O’Connor says.

In late 2022, research and education forum Callan Institute surveyed 99 large defined contribution plan sponsors and found that a slight majority (54%) of respondents have a single committee to monitor and manage their DC programs, with the other 46% splitting the responsibilities between separate investment and administrative committees. The survey also found that plans with greater asset levels were more likely to have separate committees, with only 25% of sponsors that manage assets less than $1 billion utilizing separate committees.

Those organizations with a smaller asset size “have much smaller workforces, and perhaps [fewer] divisions, so they don’t need as many committees to do the same work,” says Greg Ungerman, a senior vice president and Callan’s defined contribution practice leader. They have fewer resources and perhaps defer to the HR or benefits team to manage many of the administrative tasks, he adds.

Committee Makeup

While organization size is a major factor in the decision to have more than one retirement plan committee, so is division of labor, says Marla J. Kreindler, an attorney and partner in Morgan, Lewis who advises clients on fiduciary governance, regulatory and investment matters.

“It’s pretty common for large employer plan sponsors to have different plan administration committees and investment committees, often because different people at the company will be working on those matters,” Kreindler says. “For example, you might expect people in the treasury department of companies will be working on the investment matters, whereas you might expect folks in the HR department will be working on the plan administrative matters, although it is also common for those in the treasury department to work on plan administrative matters and vice versa.”

What do these committees look like? The Callan survey found that investment committees have an average of 6.5 members, while administrative committees have an average of 5.5. At employers with a single committee, they have an average of 4.8 members.

As might be expected, the investment committees are typically made up of members focused on the investment and finance side of the plan, while the administrative committee is made up of those focused on benefits. However, respondents with a single committee say the average proportion of the committee makeup is 40% executives, 38% members from the investment and finance aspects of a company, 31% benefits staff, 27% HR or payroll and 17% legal.

Benefits and Challenges

While having two committees may help cover more ground for larger companies, it can come with obstacles.

“A challenge that we often see in the two-committee governance structure is that they don’t talk to each other or they don’t have overlap in membership,” O’Connor says. “When you have retirement solutions that bridge both areas, it can be very clunky or not executed as efficiently as when everyone is working together.”

In fact, one of the biggest benefits of having a single committee is the ability to have real-time discussions with everyone involved in retirement plan decisions at once, says Martha Munhall, vice president of human resources at the nonprofit Jackson Laboratory in Bar Harbor, Maine. Her organization’s one committee is made up of fiduciaries—including the chief operating officer, chief human resources officer, chief financial officer, controller and chief legal counsel—and non-fiduciary members like the benefits administrator and employees from across the organization.

The structure has worked well for the Jackson Laboratory, because all members are able to get first-hand information and hear feedback from one another before making decisions, as opposed to having to hear any second- or third-hand information that risks getting lost in translation, Munhall says: “It is very efficient.”

However, she agrees that a larger company may require a different committee structure, which can also vary depending on whether a plan is defined benefit or defined contribution, especially since some organizations may be weighing multiple plans and vendors.

The benefits of having a separate committee dedicated to administrative needs include that it frees up the members of the investment committee to focus specifically on their fiduciary responsibilities, Ungerman says. Forming the administrative committee can also allow for a wider distribution of voices.

“HR staffs do a great job of administering, but it is nice sometimes to hear from other areas within the organization, as it might affect various different attributes of the retirement plans,” he adds.

Ad Hoc Options

While an organization may not have a permanent second committee dedicated to administrative needs, Ungerman says it is common for ad hoc committees to tackle a specific task, such as a recordkeeper search, which requires a lot of time, effort and a specific knowledge base. Such a project-based, impermanent group may include additional staff who can do research and bring their findings and recommendations to the main committee, he adds.

There is no silver bullet-like rule to determine when ad hoc committees make sense, which is also true of whether organizations should have separate retirement plan committees. However, it is important for companies to periodically review their governance structure and ensure that it still makes sense for their size and needs, Kreindler says.

As companies undergo changes, such as corporate transactions or adjustments to their philosophies, it is useful to have an updated governance structure in place that allows the organizations to operate and administer the plan more efficiently and help with risk management, she adds.