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Reviewing Retirement Plan Committee Designs and Practices

New research looks at how 401(k) fiduciary committees are structured and operate

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While retirement plan committees, also known as plan fiduciary or plan oversight committees, have structures as varied as the companies that sponsor them, new research shows key consistencies in how committees are designed and operate.

Retirement plan committees are entrusted with a wide array of decisions regarding a plan's operation, benefits and cost, and they ensure prudent retirement plan operation and administration. Committee members, as plan fiduciaries, are expected to:

  • Pay only reasonable plan expenses.
  • Monitor for prohibited transactions.
  • Respond to inquiries about the plan.

They also obtain a fidelity bond for the plan, which insures plan participants against losses due to acts of fraud or dishonesty. The bond is separate from fiduciary insurance, which protects committee members if they are sued for claims relating to a breach of their fiduciary duties.

How Committees Are Structured

A plan committee's "construction, monitoring and maintenance through [member] rotations and training is critical to their effective operation," according to the nonprofit Plan Sponsor Council of America (PSCA). In April, the council conducted a Retirement Plan Committees survey with responses from 255 employers that sponsor defined contribution plans, representing a range of industries and plan sizes.

"Regardless of the committee structure chosen, having a documented prudent process in place remains the best practice—and shield against litigation—for retirement plan fiduciaries," said Nevin E. Adams, chief content officer and head of research at the American Retirement Association, of which PSCA is part.

The survey found commonalities among committees across varied organizations, as well as differences based on the size of the plan sponsor. Key survey results are highlighted below.

Number of Committees

Most companies have at least one formal committee to oversee retirement plan administration, and many have two, splitting functions such as investment selection and service provider oversight.

Though the majority of respondents indicated that their company has one committee (64 percent), there is a wide variety in how those committees are structured, with larger organizations having not only more committees, but also more formalized and structured committees.

Formalized Committees

Nearly 80 percent of respondents indicated that their organization has a document that formally establishes their plan committee, and nearly all large organizations do (93 percent of plans with 5,000 or more participants), though it's much less common among smaller organizations (53 percent of plans with fewer than 200 participants).

Organizations are less likely to have a formal document that specifies which job positions serve on which committees (38 percent of plans). However, the size correlation also holds true here—twice as many large organizations (54 percent) as smaller organizations (26 percent) have one.

Members' Job Titles

Job titles were the most common way for companies to select committee members, with expertise a close second.

Committee members are often drawn from areas of the organization that are responsible for financial management and benefits administration. In addition, about two-thirds of organizations have legal counsel participate in committee meetings, though that's the case among only half of organizations with fewer than 1,000 plan participants, in contrast to the 92 percent of organizations with more than 5,000 participants.

Number of Members

Most committees have between five and 10 participants. Few organizations have more than 10 participants per committee, and these are only large organizations.

Number of Meetings

Regardless of the size of the plan sponsor, retirement plan committees most commonly meet quarterly.

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Advice on Oversight Responsibilities

"If you are like most 401(k) plan sponsors, you worry about whether your retirement plan committee is discussing the right things at your committee meetings," said Robert C. Lawton, president of Lawton Retirement Plan Consultants in Milwaukee. He recently advised retirement plan committees to focus on key responsibilities at their meetings, including the following actions:

• Ensure fiduciary compliance. 

As defined under the Employee Retirement Income Security Act (ERISA) and outlined by the U.S. Department of Labor (DOL), committee members are plan fiduciaries. As such, their primary responsibilities are:

  • Loyalty: To act solely in the best interests of plan participants and their beneficiaries.
  • Prudence: To carry out their duties prudently, showing care and thought for the future.
  • Diversity: To offer a variety of investment offerings in the plan.

Committees should "spend a portion of at least one meeting each year on fiduciary responsibility education," Lawton said. "Your investment advisor should be able to lead that discussion."

• Review provider costs and performance. 

A primary purpose of a plan committee is to monitor the cost of the entire 401(k) plan, not just investments, Lawton noted. "Although substantial litigation has focused on using the lowest-cost share class of each investment fund, retirement plan committees also need to closely monitor the cost of all providers," he said. "These include the trustee, custodian, record keeper, investment advisor, auditor and any other consultant."

Committee members should keep in mind, he advised, that "your plan does not need to use the lowest-cost provider for any function or the lowest-cost investment fund in every asset class. You can decide to pay more for a provider offering more services, or an investment fund that you believe offers better performance. You just need to demonstrate that your decision to hire a more costly provider or use a higher-cost investment fund was arrived at using a prudent decision-making process."

• Understand new cybersecurity guidelines.

In April, the DOL issued guidance on how employers and service providers could reduce cybersecurity risk regarding participants' data. "In consultation with your information systems department, either construct a cybersecurity policy for your 401(k) plan or ask it to incorporate a plan into its existing cybersecurity policy," Lawton advised.

"Construct a review-request document that contains the tips and guidelines shared by the DOL and submit it to your record keeper," he suggested. "Add the responses to your plan's file as evidence of your due diligence."


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