PSNC 2017: Educating Investment Committees

A panel at the PLANSPONSOR National Conference discussed choosing investment committee members, as well as best practices for training them.   

Teaching investment committees to monitor plan fees and take on fiduciary responsibilities is a bit like educating participants about their retirement plan. Gaining knowledge on the subject entails more than skimming through a 10-page pamphlet; it requires interaction among workers, plan sponsors, advisers, consultants—the list goes on.

“You have to bring in people who share an interest in making the plan better,” said Michael Rosenberg, senior vice president and head of retirement investment solutions at First Eagle Investment Management, on the type of individual who makes a good investment committee member.

Molly Knapp, retirement plan consultant for Sequoia Consulting Group, specified appointing employees who have related experience, such as a chief financial officer (CFO), a vice president of human resources (HR) or members of accounting, legal and finance departments.

Shale Latter, retirement plan consultant for CapTrust Advisors LLC, warned plan sponsors against forming large committees and, instead, recommended five or seven members as an ideal size. An odd number works best for voting purposes, he said.

Additionally, said Knapp, double-check to see whether any participants asked to serve on the committee are counted as voting members or nonvoting members. If the latter, they would not be deemed fiduciaries to the plan—as voting members would be—because they are unable to make final decisions. Rather, the function of nonvoting members is to provide input, she said.

To solidify the roles and responsibilities committee members will perform, as well as short- to long-term goals, she urged sponsors to establish a committee charter, one that is signed by representatives of the company’s board of trustees and, as they join, committee members themselves. Knapp advised plan sponsors to keep the charter relatively general, should, for instance, procedures need to be revised, a meeting not be held, etc. “You want one that doesn’t limit you,” she said.

NEXT: Digging deeper

Once members have joined, the focus shifts to training, to teaching them the terms of the plan—including important vocabulary—and best practices to operate the plan and serve the participants. To start, plan sponsors, should assign new members two simple tasks: ask questions, and then ask some more, Rosenberg advised.

Members will need to learn about fund share classes, particularly the types on the plan’s fund menu; revenues that get generated by the funds; and investment advisory fees, for just a few things. To understand how fees work, members should talk to the providers servicing the plan, Rosenberg said. “Don’t take the first answer to the question as the ultimate answer,” he stressed.

Latter agreed, commenting that advisers—who face the most risk for litigation if mistakes get made—can assist confused committee members by explaining subjects top of mind to plan sponsors today, such as financial wellness and maybe whether to start a program, and retirement income.

“[A member] should never leave a committee meeting confused as to what happened,” Latter said. “At the end of the day, [understanding what was discussed is your] fiduciary responsibility to your advisers.” 

While developing a curiosity about the plan teaches members about the operations and goals, this also prepares them to ask deeper questions about the plan—a skill that can potentially help it avoid litigation.

“As a best practice, I would always start with what’s best for the plan, for its goals and objectives and for the participants—and not just what’s safe,” Rosenberg said. “As a committee member, one of the most important things you can do is not only monitor decisions, but judge the impact of decisions.”

According to Knapp, one way to help the members grow in their ability to do this is by hosting themed meetings, especially on subjects where proficiency is lacking. Maybe focusing on fiduciary duties, legislation or markets, “themed meetings are a deep dive into a particular topic,” she said.

Additionally, the panelists suggested reaching out to benefit groups, associations, industry conferences and local universities that offer HR-specialized training programs, and even to recordkeepers, which may hold webinars and fiduciary training for individuals serving on investment committees.