As a plan sponsor, you have a fiduciary responsibility to act in the best interest of plan participants and ensure the plan is being managed properly. However, employer-sponsored retirement plans have many moving parts, including 401(k) and 403(b) plans.
The enactment of the SECURE 2.0 Act introduced a new era of retirement plan administration, bringing with it a series of enhancements and requirements that necessitate a thorough reevaluation of plan oversight, governance, and communications.
It’s a lot for one person to manage alone, which is why many plan sponsors decide to establish a retirement plan committee.
This article provides a structured guide for plan sponsors to improve their retirement plan committees, emphasizing adherence to regulatory requirements, enhancing operational efficiency, and protecting plan participants.
The Role of a Retirement Plan Committee
Retirement plan committees are made up of a group of individuals—typically from all backgrounds and levels at the company. Committee members are responsible for making decisions in the best interest of plan participants and their beneficiaries.
Their responsibilities include:
- Reviewing the plan design. Committee members may evaluate plan provisions, contribution levels, vesting schedules, and other plan features to ensure the plan aligns with the company’s goals, participants’ needs, and applicable laws and regulations. For example,
- Selecting and monitoring investment options. Committee members review investment performance, risk profiles, and fees to ensure participants have access to a range of suitable investment options.
- Educating participants. The committee may organize seminars, webinars, and other learning opportunities to ensure participants have the necessary information to make informed decisions about their retirement savings.
- Vendor management. Committee members select and oversee third-party service providers, including the plan administrator and independent auditors (if applicable). Regularly evaluating vendor performance helps maintain the plan’s cost-effectiveness.
- Demonstrating fiduciary responsibility and compliance. The committee documents committee meetings and decisions to demonstrate the plan sponsor takes its fiduciary responsibility seriously. These records may also be necessary for plan audits or other legal matters.
The Employee Retirement Income Security Act of 1974 (ERISA) does not require plan sponsors to have a retirement plan committee, but these committees can help ease some of the administrative burden of managing a plan.
Best Practices for Improving Your Retirement Plan Committee
Your committee’s size and structure will depend on the size of your company and your unique needs. However, the following best practices can help you enhance its performance:
Enhance Your Committee’s Composition
It’s important to include plan participants from different levels and areas of the company on your retirement plan committee. Having diverse representation helps the committee stay in touch with the needs and preferences of plan participants.
It’s also helpful to include one or more people from human resources, legal, and finance, as they likely already have some familiarity with the plan’s operations and regulatory requirements. The CFO or CEO should also be on the committee, as they are ultimately legally responsible for all plan decisions.
While the number of people to include on the committee will vary based on the size of your company, you want to include enough people to manage the plan well but keep the committee small enough to get things done. Having an odd number of participants will help you avoid tie votes.
Appoint a chairperson to run committee meetings and a secretary to document discussions and decisions, and you’ll have an effective and productive committee.
Implement a Formal Charter
A formal retirement plan committee charter serves as a foundational document that outlines the committee’s objectives, responsibilities, and operational procedures.
The charter should address:
- The committee’s purpose and scope of authority
- The number of committee members, roles, and procedures for replacing members
- Meeting frequency, recurring agenda items, and voting procedures
- The process for recording and distributing meeting minutes
- The process and criteria for hiring and monitoring service providers
The committee should review and update the charter regularly to reflect changes in regulatory requirements and the plan’s objectives.
Commit to Ongoing Training and Education
Even experienced committee members need to stay abreast of evolving ERISA rules and legislation impacting plan design and administration.
Carve out time for regular training sessions to keep committee members informed of the latest industry developments and regulatory requirements. This training can help committee members understand their responsibilities and plan rules.
Adopt a Rigorous Investment Review Process
Given the committee’s fiduciary duty to act in the best interest of plan participants, it’s essential to have a systematic and rigorous process for reviewing investment options. This includes establishing clear criteria for the selection and monitoring of investments, conducting regular performance reviews, and ensuring that investment options align with the plan’s investment policy statement.
Committee members should be willing and able to consult experts when they lack the expertise to handle choosing plan investments.
Create Schedules and Meeting Agendas
Most retirement plan committees find it beneficial to meet quarterly. Before the meeting, create an agenda of topics to discuss and distribute the agenda, along with any relevant documents, to the members so they have time to review the materials and prepare any questions. This pre-work can reduce the meeting length and ensure it runs smoothly.
To help keep the agendas manageable, consider creating a schedule for when the committee will discuss certain topics. For example, you might review the plan’s investments each quarter but review the committee charter, plan design, and performance of third-party service providers annually.
Of course, you can always address issues sooner if there is an immediate need.
Foster Transparency and Communication
During the meetings, the secretary should take minutes to document discussions and decisions. The minutes don’t have to document every conversation verbatim, but they should include the following:
- The meeting date and attendees present
- A summary of issues discussed, materials reviewed, and advice received from third parties
- Decisions made
- Action items for the next meeting
Creating a template can ensure the secretary records all of the necessary information for each meeting.
Distribute copies of the minutes to all retirement plan committee members for approval at the next meeting and maintain a copy of the approved minutes in the plan files.
The retirement plan committees should also implement strategies to regularly inform participants about the plan’s performance, investment options, and any changes to the plan’s administration. This can include periodic newsletters, informational sessions, and accessible online resources.
Get Help with Plan Compliance and Reporting from Windham Brannon
A retirement plan committee is indispensable in ensuring the integrity and effectiveness of a retirement plan. By enhancing the composition and operation of the committee, plan sponsors can deliver retirement benefits that serve the needs of participants while minimizing risk to the company.
For more information or questions about your retirement plan design and administration, contact your Windham Brannon advisor or reach out to Anne Morris.
