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How to Establish a 401(k) Plan Investment Committee

Mar 26

No matter the size of your company, having an investment committee overseeing your employer-sponsored retirement plan is a critical Fiduciary responsibility.

Your committee could consist of any amount of people, including as few as two.  However, the key membership criteria are that you’re your committee should all be qualified members.  It is better to have a smaller, well-identified committee with a clear sense of “who is a Fiduciary,” rather than placing everyone involved with the plan on the committee.

Who Should Be an Investment Committee Member?

So, who would qualify to be an investment committee member?  First and foremost, they need to be a Fiduciary.  You can refer to our piece here about who a Fiduciary is and their role and responsibility within your plan.  Under ERISA, a member of the committee is personally liable for their Fiduciary decisions.  For this reason, committee members should accept and acknowledge their Fiduciary roles in writing.

Investment Committee Best Practices

Here are several Investment Committee best practices that we have identified and put into place with our clients:

  • Have a clear appointment process and specify the relationship to the company’s board of directors and executive management team or officers.
  • Determine the structure of the committee, including appropriate size, membership, designated responsibilities, and frequency of meetings.
  • Appoint qualified committee members and ensure appropriate ongoing training.
  • Each meeting should be documented with minutes to be reviewed and approved by the committee.  Copious details are not required.  What is important is to have a clear and concise record of who attended the meeting, high-level descriptions of issues discussed, and action items agreed upon.  Litigants, courts, and regulators will look to meeting minutes when assessing cases of potential Fiduciary breach.  Minutes help to minimize personal liability
  • While members of the committee are not required to be experts with regards to retirement plans or investments, they should have some relevant experience and should be willing to work to satisfy ERISA’s strict standards.  Also, the Fiduciary committee should be designated in the plan document as the “named Fiduciary.”
  • If the committee meets infrequently, at least one of the plan Fiduciaries should be responsible for more regular oversight of investment or administrative issues.

If an organization lacks individuals with appropriate qualifications, the committee members should pursue relevant knowledge through training programs or professional counsel.  Investigations by the DOL have requested evidence of Fiduciary training.  Plan professional such as an advisor, can provide professional and technical assistance.  However, the ultimate responsibility and decision-making always lie with the Fiduciary unless this authority has been specifically delegated.

Investment committee organization is just one of many Fiduciary best practices that we cover as part of our employer-sponsored retirement plan series.  We designed this series to help support businesses of any size to help you reduce potential liability and provide a plan that best serves your employees.

Contact us for more information about any of these best practices or to see how we may better support your company and employees with a low-cost, high service employer-sponsored retirement plan.