Who’s On Your Retirement Plan Committee?
For some plan sponsors, overseeing an organization’s retirement plan can be a chore. Many companies recognize this and choose to establish an Investment Committee (IC) to manage and make decisions important plan-related decisions. Retirement plan ICs play an integral part of managing investment options for plan participants, providing fiduciary oversight, and working toward the goal of plan success.
Who Needs a Retirement Plan Committee?
Although retirement plan committees aren’t a legal requirement, establishing one tasks specific individuals with plan management, investment decision-making and fiduciary responsibility.
A retirement committee’s collective expertise can also better address the increasing complexity of governing rules and regulations that primarily stem from the Employee Retirement Income Security Act (ERISA), which establishes the minimum plan governance standards necessary to protect participants. [1]
Understanding Fiduciary Duty
A plan fiduciary must always act solely in the interest of the participants, although there is some confusion about who exactly the fiduciaries are. According to one study, nearly 1 in 3 plan sponsors do not see themselves as plan fiduciaries, [2] which is a big problem since a plan fiduciary can be held personally liable for plan losses.
Retirement plan fiduciaries are either named in the plan document or are “functional fiduciaries” based on the activities they perform. The primary responsibilities of fiduciaries are the:
Duty to act prudently with the care, skill, prudence and diligence under the circumstances that a person acting in a like capacity and familiar with such matters would use.
Duty of loyalty to manage the plan solely in the interest of participants and beneficiaries.
Duty to diversify the plan's investment options to minimize the risk of large losses.
Duty to follow plan documents to the extent that the plan terms are consistent with ERISA.
Additionally, plan fiduciaries should avoid any conflicts of interest. [3], [4]
Structuring a Retirement Plan Committee
Financial advisors can play a vital role in helping plan sponsors establish and maintain an IC. In addition to providing financial investment expertise, they can often provide operational/plan design assistance as well as recommend outside experts for additional support.
A financial advisor may also provide education and guidance regarding fiduciary best practices, regardless of the size of your IC.
For many companies, the retirement plan committee will include the plan administrator, members from the company who have financial or benefits responsibility, and additional members who provide needed experience.
Lawyers with ERISA expertise can help committees navigate regulation changes that affect retirement plans as well as provide protection from litigation exposure; approximately two-thirds of organizations have legal counsel participate in IC meetings. However, only half of organizations with fewer than 1,000 plan participants include legal counsel, in contrast to the nearly 92% of organizations with more than 5,000 participants. [5]
Legal expertise has become increasingly important as retirement plans have experienced an uptick in legal complaints. In 2020 alone, there was a fivefold increase from the previous year in class action lawsuits challenging 401(k) plan fees. [6]
Other committee members may include third party administrators (TPAs) to provide guidance on plan compliance, administration and related areas,; recordkeepers that track plan participants as well as investment and financial activity; and the company’s accountant for bookkeeping oversight.
Setting a meeting schedule is dependent on the size and complexity of the plan. Many retirement committees meet quarterly, but nearly 40 percent of small organizations meet less frequently. [7]
Duties of a Retirement Plan Committee
After an IC has been organized, a governing document is established to outline the responsibilities, procedures and processes to follow. Creating an investment policy statement is another key step that will help align the plan’s objectives and investment approach. [8]
The committee should consistently monitor the plan’s investment performance against benchmarks and also review adherence to compliance processes.
In the 401(k) world, the process that led to your decision may be more critical than the decision itself. Documenting general IC meeting discussions, the rationale behind service provider selections, and the plan’s investment policies are all vital.
Consistent employee communication is a cornerstone of any committee’s duty and should cover at a minimum, enrollment periods, contribution limits and matches, and plan information and fees.
The success of an IC can have a significant impact. While it may seem like an administrative burden, the committee members’ efforts play a defining role in the long-term retirement readiness of a plan’s participants.
[1] Department of Labor. “Employment Retirement Income Security Act.” DOL.gov.
[2] AllianceBernstein. “Inside the Minds of Plan Sponsors: Fiduciary Awareness on the Rise.” alliancebernstein.com. 2020.
[3] Department of Labor. “Fiduciary Responsibilities.” DOL.gov.
[4] TIAA. “What it Means to be a Retirement Plan Fiduciary.” TIAA.org. 2020.
[5] PSCA. “Retirement Plan Committees.” PSCA.org. April 2021.
[6] “Bloomberg Law. “401(k) Fee Suits Flood Courts, Set for Fivefold Jump in 2020.” Bloomberglaw.com. August 2020.
[7] PSCA. “Retirement Plan Committees.” PSCA.org. April 2021.
[8] TIAA. “What it Means to be a Retirement Plan Fiduciary.” TIAA.org. 2020.