Best Practices for Retirement Plan Committees
As the Employee Retirement Income Security Act of 1974 (ERISA) and the regulations generated by ERISA continue to create new obligations for plan sponsors, the importance of a formalized retirement plan committee becomes more and more evident. A well-organized and effective retirement plan committee serves as the foundation for a plan’s operational and fiduciary compliance. As such, plan sponsors should consider the following factors in establishing a successful committee (whether it is an administrative committee, an investment committee, or both):
- The size and structure of the committee should reflect the size and complexity of the plan itself. However, committees should not become too large (i.e., more than seven members) and there should be an odd number of members for voting purposes.
- The committee’s structure should be clearly documented.
- Committee members should be appointed based on job function, rather than job title, and they must be willing to work toward a common objective of satisfying ERISA’s stringent standards.
- Members should accept and acknowledge their fiduciary roles in writing.
- Certain members (e.g., the organization’s general counsel or chief financial officer) should not be voting members as they may have conflicts with insider information.
- Committee appointments may be permanent or for a specific term, and the term of appointment should be long enough to allow for continuity of plan oversight.
- Comprehensive fiduciary training is recommended at the formation of a committee, for new members, and as a refresh at least every few years.
- The committee should meet at least four times per year.
- The head of the committee, who understands the strategic objectives of the plan, should set the agenda for each meeting, rather than the committee members.
- Each meeting should be documented with minutes that are reviewed and approved by the committee. The minutes should create a record of who attended the meeting, summarize the issues discussed, and explain any decisions that were made by the committee and the actions that will be taken as a result of those decisions. Minutes should be kept in the committee’s due diligence file for at least seven years.
A well-formed and governed retirement plan committee can substantially alleviate an employer’s fiduciary burdens that result from the sponsorship of any retirement plan that is subject to ERISA.