Retirement plans are complex and have many moving parts; as such, many plan sponsors create retirement plan committees to help keep them running smoothly. They may be called “investment” or “administrative” committees and can range in size. Regardless of the name or number of people involved, the committee’s organization, process and documentation are key to success.
One important function of a retirement plan committee is regular, ongoing reviews of the plan’s performance with regard to investments, fees and company goals. Here is an overview of what a retirement plan committee does and the type of information it should review at least once a year.
What does a retirement plan committee do?
A retirement plan committee is responsible for making operational and investment decisions for the company’s retirement plan in the best interest of the plan, its participants and beneficiaries. Specifically, the committee’s duties typically include:
- Evaluating the plan’s design and effectiveness
- Selecting outside consultants and vendors, such as third party administrators, recordkeepers and plan advisors
- Reviewing, monitoring and, when necessary, approving changes to the plan’s investment menu
- Reviewing and approving plan expenses
As such, committee members’ fiduciary responsibility is significant.
Charter
The retirement plan committee should review the charter each year to ensure it remains relevant to the committee’s membership and how it functions. A retirement committee charter generally details:
- How members are selected and defines their roles and responsibilities
- The committee’s purpose
- Membership requirements (such as term limits)
- How often the committee meets
Committee members don’t have to be financial or investing experts. Keep in mind, however, that they are plan fiduciaries, with rare exception.
Investment Policy Statement (IPS)
A primary duty of the committee includes selecting, managing and monitoring of the plan’s investments. The committee should carry out this process according to a specific investment philosophy and strategy outlined in the plan’s Investment Policy Statement (IPS), which typically includes:
- Guidelines and procedures for those assisting in the investment process, such as retirement plan advisors
- Criteria for fund and investment manager selection and procedures for replacements
- Benchmarks for measuring investment performance, such as changes in management, investment style, fees or expenses and assets under management
However, retirement plan committees must be cautious not to use the IPS as a “catch-all” for plan-related policies. This document is called an IPS because it should focus solely on the management and monitoring of the plan’s investments. Anything else potentially exposes the committee to unnecessary fiduciary risks and liabilities, because once included, fiduciaries must fulfill all the duties set forth in an IPS. Having to uphold those additional, unrelated promises could put the committee in worse shape than having no IPS at all.[1] The committee should review the IPS on an ongoing basis, at least once a year, and revise it as necessary.
Service Providers
The committee should also follow specific criteria for hiring plan service providers, and evaluate their fees and value each year. In short, the committee should determine if the fees are reasonable for the quality of service provided. In addition, the committee should carefully document its decision-making process regarding fee evaluations and the hiring and firing of service providers.
Fee benchmarking
Similarly, the retirement plan committee is responsible for regularly evaluating the plan’s investment fees. A retirement plan advisor can provide the committee with detailed documentation regarding the plan’s fees and expenses. Given the potential fiduciary risks, the committee should ensure that the advisor provides comprehensive information related to investment fees, as well as relevant disclosures concerning revenue sharing and other fees.
Retirement Plan Goals
Annually, retirement plan committee reviews may reveal whether or not a plan is performing in line with its goals. Retirement plan goals should align with corporate objectives. As such, the committee should seek to determine if the plan meets expectations regarding:
- Providing employees a benefit to help them plan to retire confidently and with dignity
- Helping employers meet plan objectives
- Recruiting and retaining top talent
- Ease of administration
- Fostering employee engagement and participation
- Encouraging healthy savings rates
If the plan falls short in any area, the committee may elect to change the plan or its design to work towards achieving these goals.
By reviewing the plan regularly, a retirement plan committee can keep tabs on plan and investment performance and relevant fees, while making adjustments as necessary. A well-informed retirement plan advisor can help the committee stay apprised of the latest and greatest offerings available and assist in making critical decisions about which features and services may benefit the plan and its participants at a reasonable cost.
Adcock Financial Group
Brian Adcock
311 W. Fletcher Avenue
Tampa, FL 33612
813-935-4091
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Adcock Financial Group is a member firm of PartnersFinancial. Kestra IS and Kestra AS are not affiliated with Adcock Financial Group or PartnersFinancial. Kestra IS and Kestra AS do not provide tax or legal advice. Please access the following site to review form CRS, Reg BI and relevant disclosures. www.kestrafinancial.com/disclosures
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.
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[1]Chalk, Steff. “Investment Policy Statement Must Stop Short of Promises.” 401kTV.com. September 23, 2020.