The Fiduciary Role of the Retirement Plan Committee
According to a recent study from the Society for Human Resources Management (SHRM), 80% of respondents stated their organization has a plan document that establishes the retirement plan committee.
This SHRM study shows that most organizations now have formalized committees to oversee the retirement plan. Each member of a retirement plan committee is considered a fiduciary and must adhere to the rules and responsibilities outlined in the committee charter.
Yet, in Alliance Bernstein Research from 2016, only 49% of retirement plan sponsors considered themselves fiduciaries. The Department of Labor’s (DOL) Fiduciary Regulatory package recently broadened the scope of who is considered an ERISA fiduciary to include those with discretionary authority or responsibility for plan administration, which would be a retirement plan committee.
A retirement committee member is appointed to manage the plan under the terms of the plan document and is considered a named fiduciary. Therefore, they are held to the same fiduciary standards as a plan administrator.
Standards of Conduct
As a fiduciary, they have the responsibility to operate the plan solely in the best interest of their participants. Fiduciaries must engage in a prudent process by gathering and analyzing information before making any decisions. During the decision-making process, it is important to retain any information being received and document all processes to protect against any potential breach of duty claims. The DOL has outlined a list of specific requirements that need to be followed by all fiduciaries, and a retirement plan committee is subject to these rules.
Exclusive Benefit Rule: A fiduciary must act for the exclusive purpose of providing benefits and paying only reasonable plan fees.
Prudent Person Rule: A fiduciary must perform your duties with care, skill, prudence, and diligence that would be exercised by a prudent person familiar with the matter and acting under similar circumstances.
When it comes to investment selection, this is sometimes called a prudent expert rule because fiduciaries are measured by the standard of a knowledgeable investor. In other words, a good faith effort without investment knowledge is not enough.
Diversification rule: A fiduciary must diversify the plan investments to minimize the risk of investment loss. When choosing investment options, a fiduciary should select investments with different objectives and risk/return characteristics. For participant-directed plans, a broad range of investment options should be offered to help participants meet their goals and risk tolerances.
Duty to follow plan terms: A fiduciary must act in accordance to plan documents and ERISA rules. If a plan’s documents are in violation of ERISA rules, fiduciaries are required to override the plan document and get their plan in compliance with regulations.
Guiding Fiduciary Principles
In addition to the many responsibilities, a fiduciary must also demonstrate that they are fulfilling their obligation. It can feel a bit overwhelming, but a committee doesn’t have to do it alone. Working with an educated financial adviser can help support the committee in its fiduciary responsibilities, which can help offset some of the stress from the fiduciary and legal standpoint. Listed below are four guiding principles to help a retirement plan committee fulfill its responsibilities as a fiduciary.
- Understand Your Responsibilities
Under ERISA, one or more fiduciaries control the administration of a plan on behalf of the participants and beneficiaries.
- Select and Monitor Investments
Offering a broad range of diversified and well-selected investment options helps fiduciaries meet their duty to provide investments that are suitable for participants. Once selected, all investments must then be monitored.
- Communicate and Educate Participants
Participant communication and education are critical to the success of any retirement program. While it’s not required, plan fiduciaries may use employee education to document program goals and accountability. A well-designed education policy can help ensure effective and consistent communications and encourage better participant understanding and decisions. It may also lead to greater levels of participation, higher contribution amounts and better-invested accounts.
- Manage the Plan Prudently
A plan committee member must make decisions in the best interest of the plan participants. The right plan documentation and procedures will help the committee reach this goal while managing the plan effectively and prudent.
A retirement plan committee member must wear many hats and be prepared for all scenarios. But the main thing to keep in mind is that the goal is always to do what is in the best interest of the plan’s participants—the people who have their savings invested in your business’s retirement plan. If a retirement plan committee can move forward with that in mind, they will be working toward honoring all the responsibilities as a fiduciary.
 ERISA: The Employee Retirement Income Security Act. Learn more: https://www.shrm.org/hr-today/public-policy/hr-public-policy-issues/pages/employmentretirementincomesecurityact(erisa).aspx
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.
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