Retirement plans are complex and have many moving parts; as such, many plan sponsors create retirement plan committees to help keep them running smoothly. They may be called “investment” or “administrative” committees and can range in size. Regardless of the name or number of people involved, the committee’s organization, process and documentation are key to success.
One important function of a retirement plan committee is regular, ongoing reviews of the plan’s performance with regard to investments, fees and company goals. Here is an overview of what a retirement plan committee does and the type of information it should review at least once a year.
What does a retirement plan committee do?
A retirement plan committee is responsible for making operational and investment decisions for the company’s retirement plan in the best interest of the plan, its participants and beneficiaries. Specifically, the committee’s duties typically include:
· Evaluating the plan’s design and effectiveness
· Selecting outside consultants and vendors, such as third party administrators, recordkeepers and plan advisors
· Reviewing, monitoring and, when necessary, approving changes to the plan’s investment menu
· Reviewing and approving plan expenses
As such, committee members’ fiduciary responsibility is significant.
Charter
The retirement plan committee should review the charter each year to ensure it remains relevant to the committee’s membership and how it functions. A retirement committee charter generally details:
· How members are selected and defines their roles and responsibilities
· The committee’s purpose
· Membership requirements (such as term limits)
· How often the committee meets
Committee members don’t have to be financial or investing experts. Keep in mind, however, that they are plan fiduciaries, with rare exception.
Investment Policy Statement (IPS)
A primary duty of the committee includes selecting, managing and monitoring of the plan’s investments. The committee should carry out this process according to a specific investment philosophy and strategy outlined in the plan’s Investment Policy Statement (IPS), which typically includes:
· Guidelines and procedures for those assisting in the investment process, such as retirement plan
advisors
· Criteria for fund and investment manager selection and procedures for replacements
· Benchmarks for measuring investment performance, such as changes in management, investment
style, fees or expenses and assets under management
However, retirement plan committees must be cautious not to use the IPS as a “catch-all” for plan-related policies. This document is called an IPS because it should focus solely on the management and monitoring of the plan’s investments. Anything else potentially exposes the committee to unnecessary fiduciary risks and liabilities, because once included, fiduciaries must fulfill all the duties set forth in an IPS. Having to uphold those additional, unrelated promises could put the committee in worse shape than having no IPS at all.[1] The committee should review the IPS on an ongoing basis, at least once a year, and revise it as necessary.
Service Providers
The committee should also follow specific criteria for hiring plan service providers, and evaluate their fees and value each year. In short, the committee should determine if the fees are reasonable for the quality of service provided. In addition, the committee should carefully document its decision-making process regarding fee evaluations and the hiring and firing of service providers
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[1] Chalk, Steff. “Investment Policy Statement Must Stop Short of Promises.” 401kTV.com. September 23, 2020.
