Why Establish a 401(k) Committee Charter?

Forming a retirement plan committee, even if all the right representatives are selected, is only the first step. You should also adopt a “Committee Charter,” which operates in conjunction with the plan’s retirement committee and the associated best practices. The charter committee is formed to provide an established foundation for any ongoing grievances as well as the allocation of fiduciary responsibilities which are important to the operation of your retirement plan.

A committee charter should very clearly show the committee’s structure along with all responsibilities and objectives, keeping consistent with the committee’s formation of best practices.

ERISA + COMMITTEE CHARTERS

A committee charter should be consistent with ERISA principles and fiduciary objectives such as maintaining any exclusive benefits for plan participants and their beneficiaries. The charter should also carefully define fiduciary responsibilities and require diversified investment options while ensuring the plan operations conform with the plan documents and any applicable laws.

Utilizing these objectives from the start of all committee activities will help to keep your retirement plan in compliance with ERISA.

THE CHARTER COMMITTEE AND THE BOARD

Your Charter will describe your committee’s authority to delegate the responsibilities of fiduciary as well as any other responsibilities. No “one-person” or “group of people” can manage everything your plan needs to be a successful retirement plan. By delegating, you ensure all required duties can be completed timely and that they are coordinated across all individuals assisting in plan administration.

While monitoring available investment options may be delegated to the sponsor’s finance department, the assistance of an investment adviser may be used to assist in the evaluation of plan investment returns. It is important to clearly define the responsibilities of those inside and outside the organization so there is no missed steps or confusion over rules. Ensure your committee charter clearly list all responsibilities of each member and any delegates that will be executing responsibilities.

401(k) PLAN CHARTER COMMITTEE MEETINGS

A committee charter will also recommend the frequency of committee meetings to review and discuss the plan’s operations. These meetings are generally set up to occur quarterly. There may be a need for more frequent meetings in the event of an extraordinary economic market circumstance or other organizational activities. To ensure that all committee members attend meetings regularly, a committee chairperson will be appointed to preside over the meetings.

PLAN FIDUCIARY RESPONSIBILITIES

Plan sponsors of a 401(k) plan are considered fiduciaries to the plan which means they are responsible for what happens within the plan and that all actions taken are in the best interest of the participants. There are penalties that can be levied against plan sponsors in the case of negligence.

One great control that a plan sponsor can put in place to help with plan governance and meeting their fiduciary responsibility is to establish an oversight committee. An oversight committee can also aid in a response in the case of litigation against the Plan.

PLAN COMMITTEE

So, who should be included on this committee? We recommend the Plan Trustee(s) and Plan Administrator(s) be included. Also, representatives from Human Resources, Benefits, Payroll, Legal, and Finance. You should consider an employee representative(s) to help guide the committee on actions that would be beneficial to the employee population.

The members should be invested in the strength of the policies and procedures surrounding the Plan and have some knowledge regarding 401(k) plans. A member with knowledge of investment types and the risks associated with those types would be a great addition to the group.

401(k) PLAN AGENDA

What types of agenda items should the committee consider? One of the first areas to review is investment performance and diversity.

  • How are the current investments performing?
  • Should any be replaced?
  • Have changes been made to the investment managers for any of the investments?

If you have a dedicated investment advisor (which is highly recommended), an individual from the investment firm should be able to provide a document to help guide these discussions and provide valuable insight into the investment performance compared to relative benchmarks.

Along with the investment performance, we also recommend the committee review the fee structure involved with the plan. The investment advisor may be able to help this evaluation as often plan fees are “hidden” in investment returns.

401(k) OVERSIGHT COMMITTEE DUTIES

We recommend the committee consider reviewing provider performance.

  • Have there been problems with the TPA or record keeper that works with the plan?
  • Are there unresolved issues?

Consider reviewing the performance regularly and don’t be afraid to make changes if issues remain unresolved or are not corrected in a timely manner.

We also highly recommend the plan review controls, transaction levels, and overall usage of the plan. If the providers are large they can provide something called a SOC report. This report can help provide information on the controls at the provider level.

We also recommend the group considers conducting a risk assessment for the plan. Consider what could go wrong in plan administration. There should be controls in place to prevent or detect these items.

401(k) OVERSIGHT COMMITTEE RECOMMENDATIONS

The committee should be a formal committee with set committee members. They should meet regularly (quarterly or more often if possible). They should have agendas and regular formal discussion items. Notes should be taken of actions that are required or any follow-up items.

Your auditor and/or regulatory bodies will be looking for notes of these meetings.

We strongly encourage each plan to have an oversight committee. It is a best practice for benefit plans and helps ensure plan administration is as strong as possible. Even if the committee is small and only meets once or twice a year, it still can provide a strong overall control for a well-managed benefit plan.

There are many fiduciary responsibilities for plan sponsors not only to understand but successfully execute to stay in compliance with ERISA. At Anders, we specialize in retirement plan audits. For more information on how we can help, request a free consultation. For assistance, contact the team at (314)-886-7913 to schedule an appointment.

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