One of the biggest problems that company-sponsored retirement plans face is a lack of management. Often, the CEO or head of Human Resources is trying to do everything even though they lack the time, knowledge, and interest to do a good job. Though it is popular to focus on investment fees and options, one of the best things you can do for your retirement plan is to entrust it into the hands of a competent 401(k) committee.
Why You Need A 401(k) Committee
You wouldn’t want the president to have complete power over the fate of our nation, would you? Or if you were diagnosed with cancer, you would probably want an oncologist, nephrologist, urologist or hematologist, and maybe even a psychologist involved in planning your care and not just your primary care physician. Why?
Having more than one person involved in leadership and management provides checks and balances. A diversity of perspectives will lead to better results and multiple sets of eyes will catch more errors. For these reasons, many companies that sponsor retirement plans choose to appoint committees to run them instead of putting the entire burden on one person’s shoulders.
Who Should Be On Your 401(k) Committee
Clearly, it is wise to have a committee manage your retirement plan instead of a single individual. But, who should be on the committee? Which people are necessary to create an effective and productive committee?
First of all, anyone who serves as a fiduciary to the plan needs to be on the committee. They need to have a say in plan decisions because they are held legally responsible for them. Either your Chief Operating Officer or Chief Financial Officer should serve on the committee, as should your Human Resources Director and at least one member of senior management.
In addition to these high-level leaders, your committee should include at least one plan participant, if not more. As the main beneficiaries of the retirement plan, it is important for the participants to have representation and input regarding the plan.
A chairman should be appointed to run committee meetings. Your 401(k) committee will also need a secretary. Someone needs to take notes during meetings so that you have documentation of your discussions and decisions.
Finally, the number of people you have on your committee will ultimately be determined by the size of your company. You want enough people to protect against mismanagement, but the committee should be small enough to actually get things done. You will probably want an odd number of members to avoid tie votes.
How To Create A 401(k) Committee
First, you need to develop a charter for your retirement plan committee that lays out its purpose and scope in writing. It should outline the committee’s responsibilities and the process for appointing and replacing members. The charter should include bylaws that explain how the committee is to run.
Committee members also need to be trained on their fiduciary duties. They need to be taught the basics of ERISA and have the plan documents and procedures explained to them. Once they fully comprehend the weight and responsibility of their fiduciary status, they should acknowledge their fiduciary status and appointment to the committee in writing.
As fiduciaries, committee members must always act in the best interest of plan participants and beneficiaries. Because of this, it is important to develop a conflict of interest policy. Any conflict of interest or potential conflict of interest needs to be identified and procedures put in place to protect against them.
Once committee members know what they are doing, they can start managing the company 401(k) plan. This will include creating an Investment Policy Statement alongside a financial advisor, reviewing investment decisions, fees, and plan design, and documenting everything. Many 401(k) committees meet quarterly, but yours may meet more or less frequently depending on your plan’s needs.
How We Can Help
If you want prudent management and oversight of your company’s 401(k) plan, setting up a committee might just be the answer. At Beacon Pointe Advisors, we can help you decide who should be on your committee and make sure they have the proper education and guidance to fulfill their fiduciary duties.
Perhaps you already have a 401(k) committee, but it isn’t as effective as you think it could be. We can come alongside your committee members to coach and educate them to improve their performance and efficiencies. Give our office a call at (949) 718-1600 or email us at email@example.com if you’d like help with a 401(k) plan committee today.
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