Originally published on BenefitsPro.com on March 17, 2021
A retirement committee charter is one of the most important documents used to administer your company’s retirement plan. But when was the last time you reviewed it or updated it? It is a question benefit plan sponsors should ask themselves because an outdated retirement committee charter – or worse, not even having one – could result in unexpected legal risk and costs that could easily be avoided.
A charter is not required by the federal Employee Retirement Income Security Act (ERISA), but it is widely considered an industry best practice to have one. Why? Because the charter provides retirement committee members with guidance they need to carry out their fiduciary duties when managing the company’s retirement plan.
A record number of ERISA class action lawsuits were filed against businesses last year, according to Groom Law Group (GLG), a law firm that represents employers in retirement plan litigation. In its report, “2020 ERISA Litigation Trends Hint At What’s Ahead This Year,” GLG said around 200 class actions were filed in 2020, an 80% increase over 2019 and more than double compared to 2018. The firm said the trend “shows no sign of slowing down, with important developing issues related to fee and performance litigation for smaller retirement plans, COBRA notices, arbitration clauses and class action waivers, actuarial assumptions, cyber theft, and employee stock ownership plans, or ESOPs — among others.”
An up-to-date, well-written retirement committee charter is a benefit plan sponsor’s best defense against litigation risk. Here’s why:
1| Define roles and responsibilities: The charter identifies committee members who oversee the plan and details the wide range of administrative and investment functions that must be carried out by each individual.
2| Establish policies and procedures: The charter formalizes basic policies and procedures to ensure the retirement plan is administered in such a way that it is compliant with federal regulation. In essence, it describes the roadmap that committee members need to administer the plan.
Important components of your company’s retirement committee charter
The charter’s policies and procedures set the framework to administer the plan, so it is essential that the document be comprehensive and specific so committee members know what to do and how to do it. Provided below are several key components the charter should address:
• Establish the investment committee. This committee, which should be approved by the board of directors, is tasked with selecting and reviewing plan investments in accordance with the plan’s investment policy statement (ISP). The ISP, in general terms, outlines the plans investment objectives, rules for selecting/monitoring/changing investment options, and the roles/responsibilities of the plan’s fiduciary.
• Formalize meeting protocols. The committee should meet regularly to assess plan performance and review administrative operations. The charter should clearly describe who sets the agenda and takes/writes meeting minutes. Meeting minutes record actions taken by the committee and are considered legal documents by auditors, federal regulators, the IRS and the courts.
• Identify who interacts with the plan’s investment service provider. This person plays a vital role by interacting with the company that is overseeing the variety of plan investments offered to employees. This person is on the front line when it comes to how investments (mutual funds, ETFs, target date funds, etc.) are performing and the cost of fees to administer the plan.
• Define administrative duties. This is one of the most important positions on the retirement plan committee because the functions encompass a wide variety of tasks that must be prudently managed. Those include:
• Confirming and maintaining timely remittance of participant contributions.
• Managing any necessary amendments to the retirement plan document.
• Reporting to the company report of directors on all significant issues affecting the plan.
• Coordinating and documenting participant education/communication activities.
• Reviewing, confirming and documenting competitiveness of plan expenses and service for each plan vendor.
Because of the broad and complex nature of managing a company retirement plan, we advise that companies outsource this role to a proven, experienced advisor. The advisor will have a team of professionals well versed in understanding how the increasingly complex and changing rules and regulations will affect your company’s retirement plan. We recommend that the committee conduct a thorough review of the charter with an advisor in the second or third quarter – after tax season but well before the fourth quarter when open enrollment for benefits for many companies takes place.
Your company retirement plan is one of the most important ways your employees will save for the future. Having an updated, comprehensive charter will help ensure that you are making the right decisions, mitigating legal risk and offering your employees the best options to achieve their financial goals in life.
About the author:
Jeff Bradley serves as senior vice president, Institutional Services, for our sister company Argent Trust Company where he is responsible for expanding Argent’s institutional trust platform of services, working specifically with corporate, government and non-profit clients. He also works with Argent Retirement Plan Advisors, a registered investment advisory subsidiary, consulting with all types of employer-sponsored retirement plans.
Argent Retirement Plan Advisors, LLC is a Registered Investment Advisor registered with the Securities and Exchange Commission. A current copy of our written disclosure statement is available at no cost upon request.