Retirement Plan Committees Need a Custom Charter

Many retirement plan committees do not have a charter, and often those that do find it fails to provide adequate guidance because it is not specific enough to the organization.

According to an article in Sibson’s latest Perspectives newsletter, in the interest of sound organizational and plan governance, every retirement plan committee should have a custom charter that provides a framework for meeting its responsibilities.

Richard A. DeFrehn and John K. Graham, vice presidents at Sibson Consulting, say, among other things, a custom charter can help get new retirement plan committee members up to speed. A company with high turnover at senior levels may find its newly hired employees lack the necessary experience to take responsibility for the company’s retirement plans. A retirement committee with a plan charter would have clearly outlined duties and oversight responsibilities for committee members which would enable the company to arrange and carry out training quickly for new employees who will be performing key fiduciary and governance tasks.

To further point out why retirement plan committees need a custom charter, DeFrehn and Graham point to the case of Tussey v. ABB, Inc., in which a court noted that the plan fiduciaries did not follow their investment policy statement, and as a result, paid excessive recordkeeping fees and failed to perform appropriate due diligence with respect to the costs associated with the plan’s investment fund offerings (see “Fidelity Wins Some in Appeal of Tussey Case”). A retirement committee with a plan charter would have defined roles and responsibilities for the plan’s fiduciaries, including the performance of the tasks delineated in the plan’s investment policy statement, they say.

In addition, a custom charter can help retirement plan committee’s avoid costly litigation, according to the article. DeFrehn and Graham bring up the recently filed case against Novant Health, in which the committee was accused of offering imprudent investment options and causing the participants in two defined contribution plans to pay third-party service providers millions of dollars in unnecessary recordkeeping and administrative fees (see “Health System and Plan Providers Sued Over Plan Fees”). “A retirement committee with a plan charter would have due diligence processes for selecting and managing vendors,” the authors say.

According to the article, a retirement plan committee’s charter should:

  • Establish the committee’s authority;
  • Define the committee’s purpose;
  • Determine the committee’s structure;
  • Formalize the committee’s procedures;
  • Delegate authority and assign responsibilities and duties;
  • Create processing for selecting and managing vendors;
  • Outline the committee’s reporting needs; and
  • Set procedures for performing updates and protecting committee members financially.


Establishing a charter is a complex process that requires input from within the organization and from trusted advisers who thoroughly understand what is required and have experience in this area, DeFrehn and Graham contend. The retirement plan committee will also need assistance from human resources and/or benefits staff who are responsible for the plan’s day-to-day administrative activities and duties to define the required elements for administrative oversight of the plan.

Once the charter is constructed, it must be reviewed by the organization’s legal counsel. The charter would need periodic review and maintenance and should be updated regularly, as needed.

Sibson Consulting’s Perspectives newsletter for March 2014 is here.