Paper Offers Best Practices for Retirement Plan Committees

A Callan Institute report makes suggestions for size, staffing and training for investment and administration committees.

Callan Institute took a look at the practices of retirement plan committees to find out what they are doing right and what they could be doing better. Callan discovered that plans with more than 10,000 participants are more likely to have both an investment and an administrative committee, while plans with less than 10,000 participants tend to have a single committee.

Among investment and single committees, members consider monitoring the fund lineup to be their No. 1 priority, Callan said in its report, “It Takes a Committee: The Best Ways to Govern DC Plans.” These committees then ranked adhering to plan governance and minimizing plan risk as their No. 2 priorities. Among administrative and single committees, the first priority was tied between plan governance and process and participant retirement readiness.

Key findings from Callan’s survey reveal that committees should not become too large, i.e. more than seven people. When they do, lines of responsibility become blurred. Because committees vote, it is better to have an odd number rather than an even number of members. Not all committees give their members fiduciary training, which, Callan says, is imperative. Callan also recommends that the head of the committee, who understands the strategic objectives of the plan, set the committee agenda, rather than the committee members.

On average, investment committees tend to have six to seven members. Administrative committees tend to have five or fewer members, and single committees have anywhere from four to seven members, Callan found. The institute also advises that committees hire people by their job function rather than by their job title. This, Callan says, “streamlines the nomination process in the event of turnover or organizational restructuring, where a specific job title may be unfilled for a period of time or even cease to exist.”

Callan also says that members of the C-suite, such as a firm’s general counsel or chief financial officer, should not be voting members, as they might have conflicts with insider information. Likewise, if the committee is voting on benefits or HR-related issues, human resource members of the committee should abstain from those votes. Callan also suggests that committees set term limits for up to seven years for members, so that while committees can benefit from those with experience, they incorporate people who can lend new insights, and that these terms be staggered, so that the committee enjoys the benefits of both perspectives at any given time.

The most common number of committee meetings a year was four, which Callan recommends. Callan also says that “fiduciary training is vital for committees to operate efficiently and safely. Comprehensive fiduciary training is warranted at the formation of a committee, for new members and as a refresh for all committees at least every few years.”

Committee members believe they are doing an effective job; on a scale of one to five, with five being the most effective, investment committees ranked themselves as 4.6 on average, administrative committees 4.7, and single committees 4.5. Callan’s report can be downloaded here.