Retirement Plan Committee – 8 Tips to Build and Run Yours Effectively. We’ve been hearing from a lot of retirement plan sponsors that they’re confused about the ins and outs of creating and running a plan committee. There’s no one size fits all formula for building the “perfect” committee. A lot depends on the size and design of your plan, and the demographics of your participant population.
In its simplest form, a retirement plan committee “provides employees with a broad array of suitable investment options, fulfills fiduciary responsibilities, and manages risk and minimizes the personal liability associated with managing a plan.” Essentially, the committee serves as the backbone for the plan’s governance structure. Its members are ultimately responsible for making decisions about the plan and are usually the named plan fiduciaries.
When it comes to forming a retirement plan committee, it’s important to consider its size, who will serve, how meetings will be run, how the group will conduct itself, and more. Here are eight tips to help you set up and structure a committee that benefits your plan and acts in your participants’ best interests.
Tip #1: Consider size. A committee should be appropriately sized for your plan and organization. In other words, simpler, smaller plans and companies may have smaller committees, whereas larger organizations with more complex retirement plan offerings may require a larger committee that can adeptly manage those complexities.
Some experts believe five members is the optimal size for a retirement plan committee. Others say two to four members is best for smaller plans, five to seven for larger plans. In general, having a small but functional committee can make it easier to schedule meetings and maintain the committee’s productivity. In addition, creating a committee with an uneven number of members helps avoid situations where the vote is split evenly down the middle, resulting in reduced productivity and delayed or even stalled decision-making. In scenarios where there is an even number of committee members, however, it may make sense for the chairperson’s vote to be the tiebreaker.
Tip #2: Diversify committee member demographics. Committee members don’t have to be ERISA or investment experts, but they should have some familiarity with the plan and some investing knowledge. Typically, they are senior employees in the organization, often with HR/benefits or financial responsibilities. However, high-functioning committees tend to have members from other areas of the organization, as a more diverse group allows for a variety of perspectives, backgrounds, expertise, opinions, etc.
Consider mixing up the ages, genders, skills, education, etc. of the committee members. Doing so allows for greater representation of the different cohorts of your participant population. So for example, having a mix of older, longer-tenured employees and younger, newer employees can help the committee better understand the needs and desires of participants across the board. A higher level of diversity among members can help increase the committee’s overall effectiveness.
Tip #3: Consider frequency of meetings and attendance requirements. Once the committee is formed, how often it meets is a matter of preference, but the frequency should be in line with needs of the plan and participants. Some recommend annual meetings at a minimum, if not at least two times per year. Depending on the plan and the goals of the organization, quarterly may be optimal for some committees. In addition, committees should meet more often during times of transition or change, i.e., when the plan migrating to a new plan service provider or investment manager. Moreover, every member should be present at every meeting.
Tip #4: Get everything in writing. Detailed minutes should be taken at each meeting. Consider designating a committee secretary to help with this task. Set an agenda and distribute it to members before the meeting to keep the committee on task and prevent meetings from running long.
Tip #5: Create a “fiduciary file.” Such documentation provides evidence of fiduciary compliance and due diligence, can help show rationale for committee decisions, and serve as proof that members followed a prudent process in making those decisions. All committee members should keep copies of all relevant documents and bring them to every meeting. This can help members keep track of specific tasks that have been assigned to them, and keep everyone accountable for fulfilling their duties.
Tip #6: Avoid groupthink. In a group setting like a committee, members may refrain from speaking out and simply choose to go along with the group consensus. A committee’s purpose is to challenge the status quo in an effort to improve plan governance, so it’s critical that those different perspectives be surfaced. In other words, give everyone a voice and a chance to be heard.
Tip #7: No freeloaders. Ensure all committee members are contributing meaningfully and equally. This is less an issue in smaller groups, but as with groupthink, it’s easy in a group dynamic for a few dominant personalities to emerge and do all the heavy lifting. Every member of a committee should be involved and have an opportunity to partake equally in the decision-making.
Tip #8: Be wary of extremism. Groupthink and momentum can push committees to make more extreme decisions than the individual members might be comfortable with. Furthermore, the perception that they’re responsible for the decision as a group might cause members to feel less personal liability (even if that isn’t the case) and potentially prompt them to make riskier decisions that may not be in the best interests of the plan and its participants.
We know that solid governance is key to a successful retirement plan. A well-run retirement plan committee is one of the cornerstones of good governance. It’s important to carefully consider how your committee is constructed and how it will operate once it’s up and running. These tips are designed to help you better understand how to build and create your own retirement plan committee (or improve upon an existing one) that’s truly focused on and dedicated to fulfilling the needs of your plan and participants. We hope you find them helpful.