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Investment Committees: The Foundation of a Dependable 401k ProgramBy Trisha Brambley, Retirement Playbook, Inc.In today's litigious, post Enron world, how can employers simultaneously achieve two objectives -- 1) provide employees with a broad array of suitability options and 2) fulfill fiduciary responsibility? We recommend that plan sponsors establish an Investment Oversight Committee (IOC). Often when we are first introduced to a client they have no formal committee in place. Our practice is to help the company to establish a committee to participate in governance and oversee the plan's investment options. Who should be included in the committee? How often do they meet? Is it different for companies of various sizes? How does the Investment Committee function? The committee is a crucial part of establishing a process for a vendor, fund and fee analysis. We often see a plan sponsor without a formal committee that has one or two executives who occasionally look at the fund review that is prepared by the vendor itself. This casual approach simply will not insulate the company from participants' complaints or law suits. A formal committee meets two to four times a year, monitors the investment options, notices and discusses the relevance of any factor in a fund that could affect its continued suitability and decides the inclusion or elimination of the funds from the line-up. Minutes of every meeting should be taken and sent or made available to the retirement administrative committee and the Board of Directors. We cannot over estimate the importance of clear lines of communication between these entities as a preventative of future problems including legal issues. Many committees include the administrative functions of the plan and discuss these topics as well. In our experience, we find that many plan sponsors have separate committees for investment and administrative concerns once the plan grows to about 1,000 participants. When there are two committees, we suggest that at least one executive, usually the HR person, sits on both committees. Who should serve on the committee? The committee is comprised of senior executives of HR, Finance and Operations. We find that committees of four to six members work best. It becomes difficult to get anything accomplished with too many members. With less than that, there is not enough perspective. We suggest that a head of the committee be named, usually the CEO, but some committees operate effectively without an official chairperson. Some plan sponsors have "guests" attend committee meetings on a regular or rotating basis. Guests are usually a sub committee of employees from different locations or business units. This method gives a cross section of employees a voice regarding the plan, but they do not vote on issues. To permit that could increase rather than decease plan sponsors fiduciary risk. Managing fiduciary liability Committee members should be aware that they have corporate and personal fiduciary liability. Each member should thoroughly understand what their fiduciary responsibility is as well as thoroughly understand the investment review components. When new members are added they too should be trained to understand their fiduciary responsibility and fund monitoring process. It is a mistake to assume all members understand these issues. They need to be taught. What topics are covered in an Investment Oversight Committee? A typical meeting covers these topics:
A role that matters An effective Investment Oversight Committee is the cornerstone of the 401k program and ensures the plan remains competitive and continues to offer a good line-up of fund options. We at Resources for Retirement, Inc. sit on the Investment Oversight Committee of many mid to large companies and we are continually impressed at our clients' interest and enthusiasm for managing the plans of their company. Each member's input and perspective is critical to making the plan a great one. All committees require time. Participation on the Investment Oversight Committee absolutely influences decisions that affect everyone in the plan. About Trisha Brambley Trisha Brambley is president of Retirement Playbook, Inc., which provides plan advisor searches, plan fee benchmarking, retirement provider searches, plan committee classes, and participant financial wellness. She is a former plan advisor, served on the Washington's ERISA Advisory Council, and was part of the team that created the first 401k plans and is a frequent speaker on retirement plan issues. Email her at trisha@rplaybook.com for a free sample RFP for plan advisors search, or for information about a DIY Plan Advisor Search Kit, or the complete search process. ### 401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise. |
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