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Best Practices for Improving Retirement Plan Investment Committee Decisions

As a plan sponsor, one of the many hats you probably wear is investment committee member. It’s a role that’s critical to the success of your retirement plan, however, your specific responsibilities may not always be clearly defined or easy to figure out. A recent Vanguard study points out that some investment committees may not run as efficiently as they should, and offers up some best practices to help improve the quality of their decision-making.

The Study reviews six key issues facing an investment committee including the types of internal and external professionals should be on the committee:

  1. The fiduciary requirement.
  2. Building an effective committee.
  3. Procedure: conducting an effective meeting.
  4. The human side: committee behavioral hurdles.
  5. Investing fundamentals—it is an investment committee.
  6. Viewpoint: perspectives from those who have been there.

Investment committee members act as fiduciaries for the retirement plan assets they oversee — meaning they are responsible under the Employee Retirement Income Security Act (ERISA) for making important financial decisions about those assets, such as how they are invested, selecting a plan’s investment menu, and making sure those investments and the assets inside them are being managed in the best interests of the plan’s participants and beneficiaries.

With such intense scrutiny of fiduciary responsibilities, it’s critical for investment committee members to make sure they are upholding their fiduciary obligations according to the highest standards of the law, and that their decision-making processes will stand up in court.

Paying careful attention to committee governance — for example, implementing procedures and written documentation for all members to follow— and determining processes for handling members’ behavior in decision-making settings are key best practices to help improve investment committees’ effectiveness and keep them focused on acting in the best interests of the plan and its participants.

 

The bottom line? If the committee is responsible for it, get it in writing and make sure all members are familiar with and understand their duties. Whether it’s an investment policy statement (IPS) that details investment selection and monitoring and risk/return criteria, or bylaws for committee member conduct, documenting these processes and procedures is in everyone’s best interests. It’s also important for defending those processes in court. And in today’s regulatory and legal environment, the best defense is a good offense.

By Robyn Kurdek

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein