Documenting decisions is a key component of a well-organized
and effective committee, Mr. Burns said. “It’s very important
to have meeting minutes that clearly indicate what issues were
addressed by the committee, and that a prudent, deliberative
process was followed when making decisions about the plan,”
he said.
“An example of this is to make sure that salary deferrals
withheld from employees’ pay are deposited into the plan as
soon as possible after each payroll,” Mr. Burns said. “This is a
key enforcement area for the Department of Labor.”
When making decisions related to the plan, it is critically
important to follow the terms of the plan document, the plan’s
investment policy statement (IPS), and any committee charter
document that defines the duties and responsibilities of the
committee.
A DOL mandate in recent years that sponsors provide
participants with an annual fee disclosure notice heightens
participant awareness of fees, gives employees more information
than they had before, and highlights the importance of properly
monitoring plan costs. Whether the plan has a per-participant
charge imposed for administrative services or an assetbased fee where a portion of the funds’ expense ratio pays for
administration, it’s important to be sure that those fees are not
excessive.
“Every decision that the fiduciaries make should be done in
the best interest of the plan participants,” Mr. Burns said. “That
should be the guiding force that committees follow.”
2. Prudently select and regularly monitor the plan’s
investments.
All committee members should have the proper expertise;
if they don’t, the committee should seek external experts to
help select and monitor plan investments. The plan’s IPS is an
important tool for this—the IPS should define the guidelines
that the committee will follow in the selection and monitoring
process. Simply following the IPS should help the committee
members from a liability perspective.
“The courts don’t always expect sponsors to hit a home run
when selecting plan investments,” Mr. Burns said. “But they do
expect fiduciaries to demonstrate that a prudent, deliberative
process was followed and that they acted in accordance with
the terms of the IPS. For example, if a particular investment is
underperforming, fiduciaries may need to take action—which
could mean anything from putting the fund on a ‘watch list’ to
replacing or removing the fund when the underperformance
persists over an extended period.”
Some companies have two separate committees: an investment
committee and an administrative committee. But whether
a retirement plan has one committee or two, Mr. Burns
recommends multiple investment experts on the committee.
With more than one expert, there can be deliberation to reach a
consensus opinion about the best course of action.
3. Properly oversee the plan’s administrative
processes.
Fiduciaries must make sure that the plan is being administered
in accordance with the plan document and the provisions of
current law. Fulfilling this duty means working closely with the
plan’s recordkeepers to make sure that all of the plan’s provisions
are being properly administered. In addition, it’s a good idea to
periodically audit the plan’s operations to ensure compliant plan
administration.
24 | Summer 2015
4. Monitor plan costs.
“There are steps that fiduciaries can take to make sure that plan
fees are reasonable,” Mr. Burns said. “They can engage an outside
consultant to do a fee study for them. There are benchmarking
tools they can use. Fiduciaries should also be aware that some
funds offer different share classes with higher or lower expense
ratios, and it may be prudent to select a less expensive share
class if one is available. We’ve seen court cases where the
fiduciaries had chosen good investments, but they could have
selected a less expensive share class for their plan. For example,
the Supreme Court is currently reviewing a case called Tibble v.
Edison International, where this is a key issue.”
5. Evaluate company stock.
Be f