Insights

Just over ten years ago, I met with a CPA who specialized in audits of nearly 200 retirement plans. When I asked his best guess on the number of retirement plan audit clients with a formal retirement committee, he responded 50% and quickly added that only half of those actually held meetings with minutes documented. I recently asked this same individual the same question, adding the documented minutes to the question. He estimated the formal retirement committees at 85% with more than two-thirds having at least one documented meeting per year. 

Nothing in ERISA explicitly requires a plan sponsor to form an oversight committee, with one exception. If the governing plan document identifies a retirement committee as a Named Fiduciary, the plan sponsor must put a retirement committee in place. Outside of that exception, forming an oversight committee is considered a best practice. Multiple committees may be considered, especially if the employer and/or retirement plan size is significant. For example, one committee designated to deal with administrative matters and the other committee to oversee the plan’s investments. 

The purpose of the committee is to satisfy the rules and regulations promulgated under the ERISA on behalf of the sponsoring employer. Membership on the committee should be held by engaged, knowledgeable individuals familiar in the operation and compliance of retirement plans. 

When creating a formal retirement committee, another best practice is to formalize its charter. The charter gives the committee its formal name and identity. The charter should identify the number of committee members, their terms of appointment, and the expected length of service. The charter draws on ERISA rules and regulations to help define its purpose. The charter may even go so far as to list administrative duties of the committee to assist members with a greater understanding of how to separate corporate responsibilities from fiduciary duties as a committee member. Remember, at times, these can conflict and it’s important committee members remain focused on their fiduciary responsibilities on behalf of the plan participants and beneficiaries.

In the opening paragraph, the CPA’s off-the-head statistics indicated wonderful growth over a decade of formal committees and, relatively speaking, an explosion of actively engaged committees. It’s important to know that just having a formal committee established is only one piece of the puzzle. The true benefit (and best practice) is to have that committee meet on a regular basis. This may be annually, semi-annually, quarterly, or even monthly as facts and circumstances warrant. Documenting meetings is as important as holding the meetings. Without documentation, arguments can be made that the meeting(s) never occurred.

Does your plan have a retirement committee?

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