In this era of record-level Employee Retirement Income Security Act litigation, it’s become even more important for plan sponsors and plan committee members to understand their roles and legal responsibilities as fiduciaries.

“Under ERISA, the concept of being a fiduciary is a functional one,” says Julie K. Stapel, a partner in Morgan, Lewis & Bockius. “That means if you do things that make you a fiduciary, then you are one, regardless of whether you intended to be or if your governing documents say that you are. That’s why governance is so important.”

Anyone who has discretionary authority and control over plan assets or plan administration is a fiduciary, and that typically includes all members of a plan committee. Plan fiduciaries must act in the best interest of the plan participants and beneficiaries.

“We emphasize in our reminders to fiduciaries that this is a serious responsibility,” says Michael A. Webb, a senior financial adviser at CAPTRUST. “You really need to act and think about everything as whether you’re maximizing the retirement benefit for participants and beneficiaries.”

While ERISA does not mandate that companies have a plan committee, experts say that a prudent practice is to have a three- or five-member committee, potentially including representatives from human resources, finance or treasury, and information technology.

Having an odd number of committee members can be helpful for votes, says Jodi Epstein, a partner in law firm Ivins, Phillips & Barker in Washington. In practice, however, most votes are unanimous because committees typically discuss issues until they reach a solution that is agreeable to everyone.

While lawyers or senior executives may attend committee meetings, it is better for them not to be committee members, since they may have conflicts of interest that make it difficult to fulfill their fiduciary duties. Ideally, as many members as possible should be plan participants.

Regular ERISA training

Proactive plans should conduct training sessions that cover ERISA rules, as well as current litigation trends, at least once per year and any time a new member joins the committee.

In her training sessions, Epstein typically focuses on the first two ERISA fiduciary requirements, which specify that fiduciaries must act with prudence and for the exclusive benefit of plan participants. She also discusses common prohibited transactions, such as late contributions. This typically involves giving examples of what a committee member might do with their business hat on, such as reduce the match when an employer is facing difficulty, and with their fiduciary hat on, such as implementing design decisions.

Such sessions might also cover the specific governance structure of the committee, explaining what the plan’s documents and committee charters say about fiduciaries’ role and how to carry out those functions.

Webb suggests scheduling training sessions as part of the committee’s quarterly due diligence meetings, but stand-alone sessions can also work when time constraints become an issue.

“I suggest leaning toward having more sessions that are shorter,” he says. “It’s easier to digest the information in bite-sized pieces.”

ERISA does not require such committee-member training, but recent Department of Labor examinations have asked about it, and some insurers want to see it, Stapel says.

“The important thing is to be consistent about it, and if any of your governing documents say how often you’re going to do it, be sure to do it that often and not less than that,” she adds.

Committees should also follow their investment documents when determining how often to review their lineup of investments or providers, and they should ensure that such providers are strictly complying with their service agreements. If not, the committee must either amend the agreement or direct the service provider to become compliant.

It can be helpful to have a fiduciary calendar that spells out what the committee will focus on at each meeting. For example, one quarterly meeting might focus on reviewing plan design, while other meetings might focus on evaluating a specific set of providers or  benchmarking fees.

“It’s probably a prudent practice to take a look at most service providers at least once a year,” Stapel says. “That doesn’t mean you’re doing an RFP or RFI every year, but you want to touch base on the criteria that you’re measuring them on.”

Relying on Plan Documents

In general, committee members should be familiar with all plan documents, which in addition to service agreements, might include a committee charter, investment policy statement and the plan document itself. Webb says proactive committee members often have these documents available during committee meetings and refer to them frequently.

“A good committee meeting is a meeting that references plan documents more than plan investments,” Webb says. “That’s how important they are.”

Since ERISA rules focus primarily on prudent processes, committees should meet regularly and document their meetings with minutes that show they have made decisions about investments or hiring service providers after discussion and considering different points of view. Prudent practice for minutes is to include a summary of discussions.

Ideally, minutes are a summary, rather than a transcript, of the entire meeting. They should show that committee members evaluated a vendor report (rather than simply accepting it as is) or grappled with an issue, Epstein says. The minutes should also show a resolution on each issue discussed, even if the resolution was to table an issue or stick with the status quo.

“Rather than having an open-ended conversation, you want to have some closure, saying that the committee agreed to make a change or not make a change,” Epstein says. “Don’t say they’re going to revisit the issue if they’re not going to revisit it. Don’t put stuff in the minutes you can trip over later.”

Protecting With Insurance

In addition to following prudent practices, plans and committee members can further protect themselves by maintaining appropriate insurance. Since individual committee members have personal liability as committee members, the plan should maintain first-dollar fiduciary insurance to protect those individuals from lawsuits. Many employers also indemnify committee members acting as fiduciaries.

“As long as you’re prudently acting as a committee member, you probably don’t have a ton to worry about, even if you end up being subject to litigation, because you’re almost certainly going to be protected under fiduciary liability insurance,” Webb says.

The appropriate amount of insurance will vary by plan size, since plans will want enough to cover the amount of a litigant’s claim. Insurance brokers can help plans benchmark to determine the right level for their organization.

Under ERISA, plans also must maintain fidelity bonds, which protect against employee or provider maleficence, worth 10% of plan assets or $500,000, whichever is less. Very large plans might consider purchasing additional fidelity bonds, although they are not required to do so under ERISA.

More on this topic:

	Does Outsourcing Impact the Need for Fiduciary Education?
	Fiduciary Basics for New Plan Sponsors