ASK THE LAWYER: Retirement Committee Education Can Meet Training Needs
by Carol Buckmann
Retirement Committee Education can prove to be a priceless asset for your company. Do you serve on your company’s 401(k) plan committee? If so, this means that you are a fiduciary, and what you don’t know can definitely hurt you (and your plan participants). You do not need a special diploma or certification to be a retirement committee member, and studies consistently show that many plan fiduciaries – including committee members – either don’t know they are fiduciaries, or they are ignorant about the scope of their responsibilities.
I can’t point to any law, rule or regulation that specifically requires retirement committee education or fiduciary training, but it is one of the first topics a Department of Labor auditor will ask about. If you have received training, that demonstrates to a plan auditor that you take your responsibilities seriously. And as someone who delivers retirement committee education and training, I know that no question is too basic to cover. Here are some important topics to address:
- Define Fiduciary Responsibilities. Getting It Right is the name of a series of programs for plan sponsors run by the Department of Labor, and it sums up the most important point about retirement committee education. Committee members need a basic understanding of what they, as fiduciaries, are required to do and not permitted to do. One of the most basic and most important rules is that the plan must always be run in the interest of plan participants and beneficiaries;
- Know How to Effectively Run a Meeting. Every committee needs a secretary – who need not be a committee member – to perform administrative duties, such as sending agendas to members and taking Meeting Since a prudent process will be your best defense if you are sued, make sure the reasons for decisions are documented;
- Meet Regularly. Once a year is not enough. Quarterly meetings are becoming the standard;
- Understand Investments and Fees. If you are responsible for investments, you need to understand basics such as diversification, risk, share classes and asset classes (including the difference between active and passive management). Even if you have an outside adviser, as increasing numbers of plans do, you need to understand enough to ask intelligent questions about recommendations advisors are making. Committee members also need to fully comprehend fees – including direct and indirect fees, revenue sharing, and other fee options. One way to do that is by performing a regular benchmarking comparison of all plan-related fees. To demonstrate the reasonableness of existing fees, periodically performing a request for proposal (RFP) will demonstrate the committee has made a deep-dive on evaluating various fee-for-service models available to the plan.
- Make Checklists and Adopt Written Policies. The safest way to be confident that everything is covered is to make lists of what needs to be done each year, assign each responsibility and document the completion deadlines. For example, the plan administrator must make sure that a Summary Annual Report is distributed within two months of filing the plan’s Form 5500. Another example is to have the human resources committee member schedule a meeting near the end of each year to determine whether any legally required amendments must be adopted. You should have an investment policy statement (IPS) setting out the standards for selecting and monitoring investment options. Committee members need to be familiar with the terms of plan policies and follow them.
- Prudently Select and Monitor Your Vendors. Whether your vendors are fiduciaries or not, you are responsible for prudently appointing and monitoring them. If they are not fiduciaries, like most recordkeepers, you are responsible for their mistakes.
- Monitor Developments in the Law. The number of requirements plans must satisfy seems to increase all the time. What you did two years ago may no longer result in compliance.
- Understand Prohibited Transactions and Conflicts. I frequently get questions from fiduciaries who are asked to certify to their vendor that there are no prohibited transactions in plan operations. Even though a basic fiduciary responsibility is to avoid prohibited transactions, many fiduciaries don’t have any idea which related party transactions are prohibited or that they should avoid conflicts by leaving the room if the committee is voting on whether to hire their sister-in-law, no matter how competent, to provide services to the plan. Hefty excise taxes are imposed for engaging in prohibited transactions and unwinding a prohibited transaction can be costly and time-consuming.
- Know Your Safe Harbors. You can avail yourself of safe harbors for participant-directed investments and qualified default investment alternatives only if you fully understand the requirements.
- Stay Current on What Auditors Look For. Right now, a big focus for Department of Labor auditors is, what plan fiduciaries are doing to find missing participants.
Just as selecting investments is an ongoing job, I always recommend regular retirement committee education and updates. New laws, updated regulation and court decisions may change what fiduciaries are legally required to do. This is another reason why, though there are many different people providing different forms of retirement committee education and training, I think having ERISA counsel provide personalized training is always a good idea. Retirement committee education and training are not fungible. Some presenters are better than others. ERISA counsel can be very valuable when retirement plan committees are seeking an experienced retirement committee education style and provider. Other programs by experienced providers are also available. Plan Sponsor, for example, has a web-based training program. You can also, of course, attend live classroom programs at The Plan Sponsor University.
Carol is the co-founding partner of our firm. She is one of the top-rated employee benefits and ERISA attorneys in the United States and is widely known as an outstanding and innovative benefits lawyer, who deals with some of the foremost issues in ERISA, including pension plan compliance, fiduciary responsibilities and investment fund formation. Clients and other attorneys seek her advice due to her phenomenal depth of experience on complex pension law and fiduciary problems. She regularly shares her thoughts about new developments in the benefits industry on our Cohen & Buckmann Benefits Blog.