Most investment and benefit committees for defined contribution (DC) plans like 401(k)s and 403(b)s are run by high level executives with an occasional mid-level manager or participant getting a seat at the table. But a relatively large company made the decision to change the culture of their committee with good results.
At a TPSU program held at Valparaiso University, one of the committee members attending talked about the shift to include shop workers on the committee and how they navigated the tricky ERISA waters which can appear daunting. The committee first decided to get fiduciary training which led to the realization that they needed to hire an experienced plan advisor. Rather than just using referrals or friends of committee members, the company conducted a formal RFP to find their new advisor. That advisor now guides the committee on many decisions but specifically has created a prudent and documented process to select and monitor investments. A good advisor will use software that creates reports that committee members can easily understand although it’s also important for committee members to understand the methodology used by that software.
Lessons learned: Though DC plan sponsors might be concerned about having participants and mid-level managers run their committee, the truth is that even the high level executives do not have a lot of experience or training running a DC plan. If grass roots committee can understand how the plan is run, then chances are the rest of the participants will as well. In addition, there will be a lot more confidence and trust in decisions made by rank and file committees. Ultimately, the CFO, HR director or even CEO will sign off on important decisions anyway making sure they fit the company’s benefit strategy.
The key with any committee is getting proper training and hiring the right professionals and service providers starting with the plan advisor but also the auditing CPA. While provider consolidation has eliminated most of the record keepers who are not able to properly serve DC plans, a majority of DC plans use an advisor not equipped to handle the complexities of ERISA and many CPAs conducting audits are equally unlikely to be able to comply with complicated regulations. Hire the right professionals and providers through a documented RFP process and then create a prudent process to constantly monitor their work and plaintiff’s attorneys will likely look for plans not following these simple steps to pursue.
