Understanding retirement plan committees

Legg Mason shares insights about retirement plan committees that may help your clients reduce fiduciary risk and avoid the consequences of violations.

The critical role of retirement plan committees

Retirement plan sponsors and fiduciaries can face severe consequences if they don’t comply fully with ERISA. The retirement plan committee can play a vital role in mitigating this risk and helping to avoid Department of Labor (DOL) enforcement or private lawsuits.

Best practices for committee structure

Depending on the workload, more than one committee may need to handle responsibilities. Investment matters are sometimes given to a second committee of people with financial expertise.

Membership of the plan committee should be large enough to handle the workload, but small enough to be manageable. Three to seven members is often considered efficient, and term limits are increasingly popular to encourage fresh perspectives.

A charter helps to formalize the committee’s structure and mission. To demonstrate procedural prudence under ERISA, a written record must be kept of meetings and fiduciary decision-making.

Plan investment responsibilities

When selecting the investment lineup, the committee should follow guidelines in the plan’s Investment Policy Statement (IPS). According to the DOL, the maintenance of an IPS is consistent with a plan sponsor’s fiduciary obligations under ERISA.

Although the ERISA “duty to diversify” is critical, giant investment menus may confuse participants. The current trend is to reduce the number of a plan’s investment options, with 12 to 20 options considered enough to meet the diversification requirement.

Keep in mind ERISA’s duty of prudence. Advisors should provide the committee with all relevant information concerning a fund, highlighting merits, drawbacks, fees, and expenses. The committee should periodically review chosen investments to ensure they remain prudent.

Handling benefit claims

The committee is responsible for resolving participant benefit claims through the plan appeals process. Decisions must be made in a timely manner. Fiduciaries may want to consider liability insurance for claims and should ensure that their policies contain the appropriate coverage.

Download the in-depth guide to help your clients reduce fiduciary risk and access a helpful plan sponsor self-assessment and checklist.


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Understanding retirement plan committees

Use the checklist and Legg Mason’s insights to help your clients fulfill their fiduciary responsibilities and protect themselves.

Download the guide (PDF) .