Many plan sponsors create oversight committees for their qualified retirement plans. These committees are frequently called “investment committees,” “administrative committees,” or, simply, “retirement plan committees.” The duties of these committees are significant, and will typically include:
- Reviewing plan design options and effectiveness
- Selecting outside investment advisors, plan custodians, plan recordkeepers, or plan trustees
- Reviewing and approving plan expenses
- Reviewing investment selections and approving changes
Plan committee members are typically fiduciaries who need to act in a diligent, prudent manner and in the best interest of the participants and beneficiaries. These are seven of the most important retirement plan committee best practices every plan committee member should consider following:
1. Have a Written Investment Policy for the Plan
Many times plan sponsors feel that a written policy isn’t required when they offer a 401(k) plan since the participants make their own investment decisions. That’s not the case. Investment committee members have a responsibility to provide investment options to participants, and those options need to be evaluated against their policy.
2. Create a Written Charter
Create a written charter that clearly defines the roles of investment committee members versus those of outside consultants.
3. Establish Criteria for Hiring Outside Consultants
Evaluate those outside consultants on an annual basis. The criteria should consider costs, consultant qualifications, services offered, and the quality of the services delivered.
4. Create Criteria for the Selection of Members
Consider their investment knowledge, knowledge of ERISA, and their role at the company. Also, consider whether or not each member should be a voting member of the investment committee.
5. Consider Terms for Members
Terms for members allow for different perspectives from company individuals. Terms will typically last two to three years. It is helpful to overlap the timing of the terms so that some continuity remains on the committee.
6. Maintain Documentation of Meetings
Retain minutes that support the decisions made on behalf of the investment committee as well as the processes that drove how those conclusions were reached.
7. Have an Annual Meeting
At minimum, have an annual meeting during which the following is reviewed:
- Investment performance compared to the Investment policy for the plan
- The watch list for investments that aren’t performing in accordance with the policy guidelines.
- Fees of the plan and investments
- The services and fees of outside providers
- The education strategy for the next year
If you have questions about any of these investment committee best practices, feel free to reach out to me at firstname.lastname@example.org.