Structuring a 401(k) Plan Committee is a fiduciary duty, but it does not have to be a daunting one. A 401(k) Plan Committee is the crux of a plan’s governance. This efficient decision-making team for the 401(k) plan brings together different perspectives and ideas for the development of the plan. It is an essential piece of a strong retirement plan for employees. Here are a few guidelines for how to choose committee members.
There are no legal requirements regarding how many members should be in the committee, but there are some typical practices. Generally, the size of the committee depends upon the size of the plan and company, but 3-7 people is recommended.
This may include a member from Human Resources, who acts as the secretary but does not have a vote in decision-making. The secretarial role is important, as this person will document the meetings and all decisions made. Keeping strong records is key as a fiduciary for the plan. The committee may also include the vice president of HR, or the CFO of the company.
Members should be people who are excited to be involved in decision-making and willing to take ownership of what that entails. Committees work best when each member reviews materials in advance and actively engages in discussions. If committee members are dedicated to their role, then the committee will be able to act prudently.
It is also recommended that committee members fully understand the fiduciary role and the liabilities that come along with it. It can be helpful for members to be well-educated and experienced with the company and the plan. Though members do not need to have specific investment expertise, it helps if they are confident in evaluating plan investments, reviewing service providers, and working with the plan administration.
Many Plan Committees find it helpful to also employ an outside investment adviser to speak into areas where the members might need more guidance. Members should work together with the adviser to understand the issues and make appropriate decisions for the plan. Having an educational component to meetings can also be useful.
One person on the committee should serve as chairman. This may improve meeting productivity. The chairman has the fiduciary responsibility to appoint, monitor, and replace members as needed.
It is wise to periodically review committee member appointments. Are they attending meetings? Are they actively participating in discussions? The chairman will also have the fiduciary responsibility to fill the seats that empty.
Some committees do have term limits, but it can also be useful to have people on the team long-term. They will be familiar with their fiduciary responsibilities.
Structuring a plan committee is an important component of managing a 401(k) plan. The right people can make a great difference in decision-making and may improve a plan’s operation. For any additional advice or assistance regarding a company’s 401(k) plan, feel free to contact us at [email protected].