Many plan sponsors create oversight committees for their qualified retirement plans. These committees are frequently called “investment committees,” “administrative committees,” or, simply, “retirement plan committees.” The duties of these committees are significant, and will typically include:
- Reviewing plan design options and effectiveness.
- Selecting outside investment advisors, plan custodians, plan recordkeepers, or plan trustees.
- Reviewing and approving plan expenses.
- Reviewing investment selections and approving changes.
Plan committee members are typically fiduciaries – who need to act in a diligent, prudent manner and in the best interest of the participant. These are some of the most important best practices every plan committee member should consider following:
1. Have a written investment policy for the plan. Many times plan sponsors feel that a written policy isn’t required when they offer a 401k plan since the participants make their own investment decisions. That’s not the case. Committee members have a responsibility to provide investment options to participants, and those options need to be evaluated against their policy.
2. Create a written charter that clearly defines the roles of committee members versus those of outside consultants.
3. Establish criteria for hiring outside consultants and evaluate those outside consultants on an annual basis. The criteria should consider costs, consultant qualifications, services offered, and the quality of the services delivered.
4. Create criteria for the selection of members. Consider their investment knowledge, knowledge of ERISA, and their role at the company. Also consider whether or not each member should be a voting member of the committee.
5. Consider terms for members.
6. Maintain documentation of meetings. Retain minutes that support the decisions made on behalf of the committee as well as the processes that drove how those conclusions were reached.
7. At minimum, have an annual meeting during which the following is reviewed:
a. Investment performance compared to the Investment policy for the plan.
b. The watch list for investments that aren’t performing in accordance with the policy guidelines.
c. Fees of the plan and investments.
d. The services and fees of outside providers.
e. The education strategy for the next year.
If you have questions about any of these best practices, feel free to reach out to me at firstname.lastname@example.org