Allocating Committee Time in 2020

Reviews of the investment menu often take up the most committee time, but is that the best practice?

Art by Carol Rollo

Retirement plan committee members are tasked with various duties when it comes to establishing and understanding their company’s 401(k) plan.

While discussing plan design, reviewing expenses and evaluating service providers are all top responsibilities, reviewing the plan’s mutual fund quality reports often takes up the most time. This will always be an important part of the committees’ work, but some experts say this is not actually the best use of committee members’ time.

Dannae Delano, partner at The Wagner Law Group in St. Louis, Missouri, says reviewing a plan’s mutual funds is very important, but simply spending a lot of time talking about mutual funds is not enough.

“I don’t know if the length of time is as important as just knowing that the committee understands what is being presented to them,” she explains. Plan committee members can do a lot of the groundwork of monitoring the investment menu outside the context of committee meetings, given the abundance of real-time data made available to modern defined contribution plans. This activity can help ensure the investment-focused discussions had during the meeting itself are productive and efficient.

Should a plan committee feel the need to do so, hiring expert investment advisers can free up time and intellectual resources for the committee to focus on other areas, such as governance policies and procedures. Advisers offer other helpful support services to plan committee members, incorporating topics such as how to select and monitor service providers; benchmarking plan investments and fees; and even staying ahead of current 401(k) litigation concerns.

Generally speaking, committee members are not specialists in mutual funds and investments. Therefore, they can and perhaps should rely on experts hired for that purpose, without compromising their fiduciary standing, says Delano.

“As long as they feel the expert is presenting something to them that they can understand, or they’re comfortable with the selection of the expert and advice, they would be meeting their duty with regards to the investments,” she adds.

Because fiduciaries are expected to be experts under the Employee Retirement Security Act (ERISA), it’s crucial for the committee to seek the help needed in order to understand topics within the plan. Otherwise, they can risk litigation.

Another best practice approach Delano recommends is ensuring the level of service provided outweighs the costs associated. “You don’t want to hire the absolute best if that’s going to be an inordinate amount of money for the plan to be spending on the cost of an expert,” she says. “That’s always going to be the standard that you want to follow.”