Plan Committees Help Sponsors Document their Activities

July 20, 2010 ( – While employers are under no obligation to create a retirement plan committee, it may prove the best legal move they ever made. 

Without it, those who attended a recent Gallagher Retirement Services Webinar found out, it can be significantly more difficult to document the kind of prudent plan processes regulators will be looking for from plan fiduciaries and courts have come to expect. Gallagher hosts Mike DiCenso, National Practice Leader, Gallagher Retirement Services, and President of GBS Investment Consulting, LLC, and Paul Hebert, an attorney and Area Vice President, Gallagher Retirement Services, repeatedly emphasized during the hourlong session about the best practices for plan committees, that it will be what plan officials actually do in running the plan – the processes they follow – that will be a critical issue during any potential regulatory or legal review.

Hebert repeatedly emphasized memorializing both the actions taken and the reasons for those actions. “Ultimately fiduciaries are judged on the prudence of their decisions based on the information they had at the time when they made the decisions,” he asserted.  

Turning to the Webinar’s central topic, Hebert explained that plan committees generally have an administrative oversight function (making sure the plan operates according to its terms and the law, for example) as well as an investments aspect (selecting and monitoring investment options, for example) to their responsibilities. Plans can split the work into two separate bodies or have the same group perform both functions.   

Those named to a plan committee have to take the appointment seriously, Hebert warned. For plans governed by the Employee Retirement Income Security Act, ERISA requires that fiduciaries either are themselves expert in the issues with which they will have to deal or will prudently select and monitor outside experts to advise them.  

The size of the panel generally depends on the type and size of the employer although many plan committees have five to seven members who have a variety of experiences and backgrounds. Human Resources, Finance and Operations personnel are often tapped to be plan committee members, Hebert said.  

There is no requirement for the frequency of committee sessions; it is expected to meet “as needed,” Hebert said. A recent survey said 64% of such panels convene quarterly, he noted.   

Committee meetings need to be formal affairs with careful notes taken that document both the decisions made and the reasoning behind the decisions.  

The attorney went on to discuss the variety of restrictions on fiduciaries’ conduct, many of which deal with bars on engaging in transactions that personally benefit the fiduciary or transactions with “parties in interest” such as those involving property leases.  But the law does provide some potential protections for fiduciaries. Hebert said they include 404(c) safe harbor protection (relieves fiduciary liability for participant decisions but carries a long list of qualifiers) and qualified default investment alternatives (used in default investment selection situations).  

Fiduciaries can also purchase a special insurance policy that can include provisions covering legal fees for fiduciary breach suits and coverage if the person is accused of a negligent error or omission in their plan work.  

One piece of potential committee business plans should not overlook is a compliance review, the attorney said. Finding compliance errors on their own and correcting them voluntarily is a lot less expensive than doing so after a formal regulatory audit, Hebert pointed out.  Some 37% of committees do such reviews annually, he said.