Best Practices for 401(k) Retirement Plan Committees

Should I Still Be Investing in Bonds?
May 17, 2017
The Problem with Perceived Performance
May 24, 2017
Show all

Best Practices for 401(k) Retirement Plan Committees

Plan Committee

Many 401(k) plan sponsors choose to create committees to help manage the company’s retirement plan. These are typically called “retirement plan committees” or “administrative committees.” Since this group of people is responsible for making policy and investment decisions for their company’s plan, their fiduciary responsibility is significant. Retirement plan committees are typically organized to do the following:

  • Review plan design and effectiveness
  • Select outside service providers for the plan
  • Review and approve plan expenses and fees
  • Review investment selections and approve/document any changes.

As fiduciaries, plan committee members must act prudently and should make all decisions in the best interest of the participants. Though each plan and company will have different needs and goals, there are some common best practices that plan committees can use as guidelines.

1. Have a written investment policy for the plan. 

Though this is not technically required by law, it is important to have one and to stick by it. The policy statement describes investment goals, the objectives of the plan, and the manner in which these will be achieved. It is the outline for the operations of the plan and addresses many specific issues such as risk tolerance and asset allocation. All investment options provided, and any actions taken, should be evaluated against the policy. This can assist in keeping committee members on track with the intentions of the plan. If needed, have a registered financial adviser help the committee draft this statement.

2. Have a written charter that clearly defines the roles of committee members. 

Each member should understand their responsibilities as well as their fiduciary risk. Organization is key to a strong retirement plan committee. When there is membership turnover, it is wise to have roles defined in order to assist in the ease of transition for new members.

3. Use streamlined criteria for hiring plan service providers, and evaluate the fees and value of each service provider annually. 

The committee is generally responsible for regularly evaluating fees. It needs to be determined if the fees are reasonable for the quality of service received. Documentation of why and how decisions are made is extremely important.

4. Retirement plan committees can also benefit from a wise member selection process.

Though members do not need to be finance experts, they should be familiar with the plan and the company, committed to their role, and willing to come to meetings prepared. Some companies prefer term limits, while others see value in long-term members. There is a fiduciary responsibility in choosing committee members, and the main fiduciary of the plan can be held liable for the actions of those on the committee.

5. Document the minutes of every meeting.

This is stressed often because it is of such great importance. The minutes will reflect the decision-making process and may be useful if the decision needs to be clarified to participants or the courts. Having documentation of the minutes can potentially lower the committee’s liability.

6. Minimally, have one meeting per year. 

This meeting should review the following:

  • Investment performance (as relates to the Investment Policy Statement)
  • A list of investments that may need to be replaced
  • An evaluation of the plan’s fees
  • Plan service provider fees and quality of service
  • The employee education plan for the following year.

Membership in a retirement plan committee comes with a fiduciary responsibility toward plan participants. Thankfully with the guidance of best practices, members can feel confident in their ability to make wise decisions for the participants of the plan.

Samuel J. Sweitzer
Samuel J. Sweitzer
Founder and President of Anson Analytics, Inc. - an RIA firm specializing in Research Based Investment Management for Corporate Retirement Plans and Private Investors. Sam is a Chartered Financial Analyst (CFA) and currently serves as Anson's Chief Investment Officer. Sam resides in South Metro Atlanta with his wife and two daughters.

Leave a Reply

Your email address will not be published.