PSNC 2019: Best Practices for Your Retirement Plan Committee

Although some retirement plan sponsors may have one committee for administrative tasks and one for investment decisions, the most common practice is to have one primary committee for administrative and investment matters, Benjamin L. Grosz, partner at Ivins, Phillips & Barker, told attendees at the 2019 PLANSPONSOR National Conference.

An exception would be for plan sponsors that have different plan types; they may have an investment committee for a defined benefit (DB) plan or a nonqualified deferred compensation plan, said Phyllis E. Klein, senior director, professional services, consulting solutions group, CAPTRUST.

“For companies that do a lot of mergers and acquisitions, the worst thing is to have two separate committees making inconsistent decisions,” Grosz contended. For example, it could be tough to justify different investment menu or vendor decisions for similar 401(k) plans within the same controlled group.  He recommended that plan sponsors consider consolidating competing committees, or merging acquired 401(k) plans.

He added that he has seen separate appeals committees for some mega plans with many participants.

Klein noted that the committee setup may look different for public versus private-sector plans, or for nonprofit versus for-profit plans because they are solving for different problems.

Regarding who should be on the plan committee, Dan Brandenburg, partner at The Wagner Law Group, suggested that the best committees have five or six people at most, with advisers and legal counsel being ad hoc members. Committees should include someone from the legal department, someone from finance, someone from human resources and a hands-on administrator of the plan, he said. “Being a member of the committee is not an honor, it’s a bullseye, so you don’t want committee members that have great responsibility for the company possibly tied up in a lawsuit,” he warned.

Grosz agreed, “I’d say the CEO, CFO, COO and internal counsel should not be on the committee. They may have material inside information, for example, if the plan invests in company stock.” He said the key for who is on the committee is a person’s skill set and willingness to engage. “They don’t have to be experts. They can work with outside experts,” he noted.

Grosz suggested it is also not good to put low-level staff on the committee, but he has seen it work to have middle managers as members. And he agrees with Brandenburg that the firm’s legal counsel should not be a committee member, but should attend meetings.

Klein has seen special circumstances for higher education plan committees. They tend to be more inclusive, with representation from not only the administrative level but faculty and among different schools, i.e. law and medicine. Bigger committees can lead to issues about meeting regularly and having different roles, she said.

“For committees we work with, the roles are basic. It’s really about showing up. Committees are only meeting about a couple hours a quarter. They are supposed to vet information and make decisions on that information,” Klein said.

She added that effective committees have members who are present and engaging in discussions. They have an obligation to understand their responsibility for tasks. If there’s a member who never asks questions, that’s a red flag.

“The committee should have good dynamics—no one domineering,” Grosz said.

Brandenburg strongly recommends that an outline of the committee meeting agenda is sent to members far enough in advance so that they can review and investigate. “Members should not only be present in the couple of hours of the meeting, but should be committed to preparing before the meeting, taking time to understand issues.

He added that committee members are responsible for reviewing investments, plan analytics, turnover levels or other personnel issues, selection and monitoring of providers and compliance issues at 50,000-foot level unless there’s a specific problem that has to be discussed. According to Brandenburg, although the upkeep of plan documents would be a staff decision, the plan committee needs to make sure documents are being kept up to date. He added that handling appeals of employees should be a separate function unless the plan sponsor is very small with few employees.

Fiduciary training

Grosz told conference attendees that retirement plan committee members need fiduciary training. “The basic thing they need to recognize is that while they are also a participant in the plan, they need to make decisions not in their best interest but in all participants’ best interest,” he said. Committee members also need to understand which decisions are fiduciary functions and which are settlor functions. According to Grosz, they may want some committee members to only make fiduciary decisions and others to make settlor or business decisions. The committee has the responsibility for making sure these decisions are implemented properly.

He said the best practice is to have fiduciary training at least once per year and whenever a new member joins the committee.

For annual training, the topics will depend on how much turnover there has been on the committee. “We don’t want to do the same training every time; what they need to know could vary,” Grosz said. For example, he explained, the committee may be getting ready to do a request for proposals (RFP) or it may considering securities lending for a DB plan. “What specialized training to include each time will depend on what is going on with the plan,” Grosz said.

Klein’s firm serves as a fiduciary alongside retirement plan committees. “We do fiduciary training when we get a new client. Some clients do it every year, and some do it only when there are changes to committee members,” she said. “We do it at least every three years if the client doesn’t choose those other options.”

CAPTRUST has done some electronic recording of training to quickly onboard new committee members. Klein said the firm has seen in last two years committees asking for expanded types of training. “We talk about what it means to be a fiduciary, but some are asking for specialized training for investments, for example, so they will understand what the plan’s adviser is talking about when he brings quarterly investment reviews to the meeting,” she said, adding that some are asking for training about regulator audits, as well as what benchmarking means and what it entails.

Klein noted that sometimes the plan sponsor’s legal counsel does the training.

She added that committee members need to understand their risk, but also what they have in place to protect them, such as fiduciary liability insurance.

According to Brandenburg, his firm does ad hoc training as something becomes more relevant due to a lawsuit or regulation, for example. Sometimes it’s via a memo, sometimes it’s a via a special meeting or it could be during the regular committee meeting.

Documentation

Grosz told conference attendees the most important thing for retirement plan committees is to document all decisions even if they don’t make a change. In addition, materials given to the committee are part of documents that should be saved. “Include in meeting minutes decisions to be made, what was presented, and sprinkle in items about questions asked and mention that there was a robust discussion, but it doesn’t have to be a full transcript,” Grosz said. “You have to expect that meeting minutes will be the first thing auditors or plaintiffs’ lawyers are going to read.”

How much documentation is too much? Brandenburg warned that meeting minutes could be a roadmap for litigation or potential disputes. “Put enough in to show the committee covered a decision, but not too much that may trigger issues,” he suggested.

“We encourage folks to separate out fiduciary discussions and non-fiduciary discussions in the meeting minutes,” Klein said. “This shows members understand when they working in a fiduciary capacity.”

She also suggested retirement plan committees have legal counsel review their meeting minutes, and warned attendees to watch out for what they put in an email.