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A Guide to Fiduciary Prudence, Part 4: Establishing and Operating a Committee Meeting To Ensure ERISA Compliance
Last Updated: August 01, 2013
In continuation of our fiduciary prudence series, the next issue of importance in complying with one’s duties as a plan fiduciary should be establishing and maintaining a retirement plan committee. The following questions will be answered in this blog post:
1. How can a retirement plan committee help manage the fiduciary oversight of a plan?
2. Who makes a good retirement plan committee member?
3. What should a committee meeting agenda be comprised of and how should committee meetings be properly memorialized?
So let the fiduciary governance discussions begin!
How can a Retirement Plan Committee help manage the fiduciary oversight of the plan?
As you may know, serving as a plan fiduciary can be a daunting task, one with a lot of risks and requirements. In fact, there are so many requirements and such a concern of risk, that one common way to reduce the fiduciary burden on one individual is by spreading the wealth of duties to other qualified individuals through the formation of a retirement plan committee.
Although the named fiduciary maintains the fiduciary duty of monitoring the delegated individuals who serve on the committee, the committee is now tasked with the fiduciary duties and administrative tasks for which it is delegated. But what duties are delegated to the committee? Ultimately, this is one of the reasons that creating a formal committee is so crucial when delegating responsibilities. If you create a formal committee with a formal charter, you can clearly notate which activities become the committee’s responsibilities and which remain with the named fiduciary. Uncertainty may be avoided with a sound committee structure whereby the committee has been vested—pursuant to a valid procedure under the plan or a separate charter—with primary fiduciary responsibilities that would otherwise default to the named plan fiduciary or plan administrator.
Who makes a good retirement plan committee member?
Although some plan documents may specify certain individuals to serve on the committee (e.g., “The CEO of the Company shall serve as the Chairperson of the Committee”), many do not, leaving the named fiduciary with the discretion to pick who he/she sees fit. In creating this retirement plan committee, a fiduciary should aim to create a group that includes a number of the following: qualified internal representatives, outside advisors, individuals who can bring a diversity of knowledge, and persons with insights and ideas to help in mitigating a plan’s fiduciary and compliance challenges.
So, specifically who should serve—key management like CEOs and CFOs? These choices can be good as they tend to be experienced, familiar with the plan sponsor objectives, familiar with the business operations of the plan sponsor, and tend to have invested the maximum amount of money permitted by the plan and by the IRS code limits in the plan. On the other hand, because key corporate officers have many responsibilities, and wear many hats as it is, requiring that they also serve on a benefits committee may be spreading them too thin. Furthermore, key officers tend to make bigger fiduciary targets, particularly in large plans and in plans that offer employer securities as an investment option.
One of the most commonly delegated employees onto a committee is a plan sponsor’s HR executive. This person is usually a good fit, due to their knowledge of the plan, their knowledge of the employee’s needs, and the fact that the responsibility of being a fiduciary fits their employed position. Even so, one problem we have seen is a penchant for listening to a few participants’ requests more than they should, letting those requests cloud one of the always-important duties of a fiduciary: to do what is best for all plan participants, not just the vocal few.
Larger employers may have a separate benefits department, generally led by a chief benefits administrator who reports to the HR executive. These positions can be good people to have on the committee also, due to their in-depth knowledge of the plan’s administration.
In some situations, a person who can serve as a representative of the rank and file employees will be a good fit as a committee member. For instance, in a company that is a giant widgets manufacturer, it may be good to have a plant or a regional sales manager serve. With some provided education on retirement plan administration and investments, they can serve with knowledge of the needs of the plan while providing a voice for the employees. Of course, one drawback is similar to that of the HR executive; this person may have trouble taking his plant manager hat fully off to put his fiduciary hat on (e.g., issues with the manager favoring decision that benefit his facility and its employees).
Ultimately, there are a number of quality and qualified individuals who can serve on a retirement plan committee. One compilation of individuals may work best for your committee while an entirely different group of people may work best for another company’s retirement committee. No matter the compilation, always remember that in designing your retirement plan committee, you must keep that fiduciary hat on and look for individuals who can best serve the needs of the plan and its participants.
What should a committee meeting agenda be comprised of and how should a committee meeting be properly memorialized?
In creating a committee meeting agenda, consistency is important. This is not just with respect to the frequency of meetings—consistent calendaring of meetings with a general time frame of two hours or less is key—but also with respect to content during those meetings. With the goal of making the best use of everyone’s time and maintaining structure to the meeting, a good committee meeting structure can be broken down into: (1) reminding the committee of where they were, (2) establishing what has happened since the last meeting, (3) confirming or determining what still needs to occur, and (4) discussing new items up for discussion as well as what decisions need to be made. Adhering to this structure not only makes for consistently-held and efficiently-run meetings, but also makes it easier to follow when memorializing the all-important minutes.
It is critical to take good committee meeting minutes as it is both proof of the fiduciary duty of prudence and a reminder of the action items from the last meeting. Committee minutes, if taken and documented correctly, should provide a good road map for the decision makers. However, if the minutes are incorrectly taken they can do more damage than good.
The first thing to do is to make sure the basics are included: When and where the meeting was held? Who attended and who was absent? Once the basics are in place, there should be a brief summary of each section discussed. Documentation of good committee interaction is key, but it has to be content that illustrates the plan is being run with the participants’ best interest in mind. Lastly, the minutes should have the action items that need to occur and who is responsible for completing the action item. For example, “A search needs to be completed to replace investment A; Adviser to complete.” This holds people accountable and reminds the committee of what needs to be completed and what got completed.
Once the minutes are complete, the committee chairperson should execute and file them accordingly. These minutes can then serve as the “step one” of the next committee meeting to give a baseline and reminder of what happened prior.
Hopefully, this guidance serves to reassure you that you’re on the right track with your committee. If you would like more information on how to establish and maintain a committee, take some time to listen to our recorded webinars on the subject. If you have any questions, don’t hesitate to contact our ERISA Services team for more guidance.
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.
