Plan Governance by Committee

We have discussed and shared various articles and checklists regarding plan governance in prior posts.  Historically, the most successful plans have been governed by a committee or committees.  We have recently reviewed a study by the Callan Institute which provided some very insightful information regarding governing plans by committee.  Here is a summary of the information contained in the Callan study.

1. How many committees should be formed?

Most companies (53%)  had a single committee.  Companies with separate committees for investment and administration of the plan (47%).

A higher percentage of larger plans utilized separate committees compared to small to mid-size plans.

2. Who appoints the members of the committee?

Most committees appointed their members by name. 48% of single committees were appointed by name where separate committees were utilized, whereas 27% of single committees nominated individuals by name.

3. How many members should be appointed to a committee?

The number ranged between 4-5 members on a single committee (33%), investment committee (32%) and administrative committee (44%). It is recommended that an odd number of members be appointed to the committee to prevent ties. Most committees surveyed by the study did not have any preset term limits.

4. What criteria should be documented when choosing who will be appointed to a committee?

a. Is the individual eligible to serve on the committee?
b. Is the individual qualified to serve on the committee?
c. Does the individual understand their duties and responsibilities?
d. Will the individual serve with complete loyalty to the participants and beneficiaries participating in the plan?

5. How many times should the committee meet?

The most common number of committee meetings according the Callan survey was four per year; three meetings came in second for investment committees, 1–2 meetings for administrative committees, and 5–6 meetings or 10+ meetings per year tied for single committees.  Regardless of the number of meetings in a single year, it is imperative to document all decisions made by the committee.

6. Should the Investment Advisor attend committee meetings?

In addition to the committee members, the Investment Advisor attended the investment committee meetings in 72% of the committees surveyed – 79% of the single committees surveyed and 25% of the administrative committees surveyed. Advisors who attend and participate in committee meetings have an opportunity to assist committee members in making good, well-documented decisions.

7. Setting the agenda:

“The party responsible for setting the agenda influenced the committee’s priorities. When the staff set the agenda, the top priorities were fairly balanced, with the least focus on retire­ment readiness, and the most focus on fees, according to the survey. When the full committee set the agenda, the survey found that plan governance was generally a higher priority, and when the committee head was responsible for setting the agenda, the survey results revealed a greater focus on retire­ment readiness. When consultants or advisers set the agenda, retirement readiness and asset allocation and diversification tended to be most important.”

8. Committee Challenges as outlined in the survey:

“Strained internal resources was a top challenge for all committee types. For example, Members must collect, compile, and disseminate a huge amount of information for committee meetings. Administrative committees struggled equally with strained internal resources and timeliness of making decisions. In contrast, clarity around roles and responsibilities was a bigger challenge for single committees than other committee types.”

9. Committee Fiduciary Training:

Fiduciary training for committee members is very important.  DOL investigators are starting to ask for documentation on how committee members were trained.  It important to note ERISA regulations require the Fiduciaries to be held to a Prudent Expert Standard of Care.  ERISA’s prudence test is not that of a prudent lay person but rather that of a prudent expert.

10. In Conclusion:

A properly structured and informed committee can make quality informed decisions in the best interest of the participants and beneficiaries.  This will result in a very successful plan which will meet the goals and objectives of the plan sponsor and provide the opportunity for participants to save for a dignified retirement.