The fifth and final day of the 2020 PLANSPONSOR National Conference included a virtual panel discussion on the topic of improving plan committee operations.
The panel featured three experienced retirement plan industry insiders, including Summer Conley, partner at Faegre Drinker Biddle & Reath LLP; Gordon Tewell, a principal with Innovest Portfolio Solutions; and Clifford Dunteman, principal and vice president for investment consulting services at Francis Investment Counsel.
In kicking off the discussion, Tewell explained that there are traditionally two main places to source retirement plan committee members.
“The first common source is the senior executive leadership of the organization,” Tewell said. “The second is going to be the human resources [HR] staff. These two groups can usually work very well together to bring a balanced perspective to the plan’s operations.”
Tewell recommended that a plan committee be comprised of an odd number of members—usually between three and seven—which precludes the possibility that important votes will end up in a tie.
“The question of employee demographics is also important to consider,” Tewell said. “We know that it is important for committees to make an effort to reflect and listen to their employee base, otherwise the plan will not be in step with what the participants want.”
Dunteman and Conley agreed with these points, adding that a person does not have to be a full-fledged fiduciary committee member in order to help the plan operate. They recommended, for example, creating a sort of informal advisory committee that draws on a rotating pool of people from across the company to tell the committee about the employee base’s evolving wants and needs.
“We know that different groups view the retirement plan very differently, whether we are talking about different cultural perspectives or perhaps considering the different age demographics in a plan,” Dunteman said. “If you are a large organization, you may want to look beyond the home office and get some advisory representation from your whole workforce to provide better guidance to the plan committee itself.”
The trio of experts emphasized that there is no single way to organize a committee that is best. Rather, the focus should be on creating a committee that meets the unique needs that are present in any organization.
“A simpler employer structure and employee base makes things somewhat easier,” Tewell said. “Also, it is important to strike a balance between the goal of inclusion on the one hand, and ensuring that there is not too much turnover on the other. It’s a balancing act.”
Conley stressed that it’s important to ensure everyone who is on the fiduciary committee actually wants to be there and is willing to fully participate.
“What matters the most is having people who are engaged and willing to be involved,” Conley said. “We try to encourage clear delineation of responsibilities, and we stress the importance of providing a lot of ongoing education and training about how to meet these duties. It might even be a quarterly education program that is put in place for the committee. It is that important.”
Tewell noted that good intentions are not enough to make good committee members—nor is a wealth of expertise—when the committee is not given enough time and resources to fulfill its obligations.
“One dynamic we often see is that very senior leaders, say the CEO and CFO [chief financial officer], will want to be on the committee, so that they can have control over the process and financial decisions being made,” Tewell said. “However, it often turns out that the CEO or another executive simply does not have enough time to fully participate. This can lead to committee meeting postponements and other potential problems. In this sense, the simple ability to regularly attend meetings can be overlooked—especially when the committees start to get too large.”
Conley agreed with that sentiment, warning that fee litigation often includes direct scrutiny of such matters.
“To avoid problems, you really need strong communication pathways going up and down,” she said. “What I mean is that the committee members need to be regularly reporting upward to the people who appointed them. And, at the same time, the people who appointed the committee must be engaged in regularly monitoring the people they appointed. The fiduciary responsibility flows both ways.”
The trio concluded by emphasizing how important documentation is to this entire discussion.
“You aren’t always going to make perfect decisions as a committee, and you are not, in fact, required to do so,” Conley said. “Meeting the fiduciary duty is about ensuring a prudent process and documenting your deliberations. When you have gone through the right process, you must make sure this is reflected in the minutes and meeting notes. These things become so critically important in the case of a fiduciary breach lawsuit. The best defense is proof of a prudent process.”
When it comes to what the meeting minutes should look like, the trio agreed there is a fine line between including too much information versus including enough information to show that the committee indeed went through a prudent process.
“I tell my clients to say what happened, not necessarily to document every single word or question that was debated at a meeting,” Conley said. “You need to document that you went through all the necessary steps to come to a deliberated decision. You may consider having the note taker or minute taker not actually be a full member of the committee, so that they can focus on doing the job of really taking good minutes. We also encourage the committee to take time to review and decide, in the meeting itself, what the final version of the meeting minutes will look like.”
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