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The Ins and Outs of Retirement Plan Committees

Many qualified retirement plan documents, for employers large and small, initially delegate authority for plan administration by default to the sponsoring employer. From a governance standpoint, this places the fiduciary obligations for administration of the plan on the governing body of that employer (e.g., the Board of Directors).   However,  a sponsoring employer's governing body may not always be best suited to perform the fiduciary  duties of a plan administrator.  Therefore,  plan sponsors often delegate all or some of these fiduciary duties to one or more committees. Large employers may have two committees: an administrative committee and an investment committee. This newsletter briefly discusses certain considerations for plan sponsors who have delegated, or are considering delegating, authority to a committee.

Delegating Authority to One or More Committees -

Without proper delegation of authority, the actions taken by a committee may not be legally valid and could be brought into question by the Internal Revenue Service or Department of Labor, if either were to audit the applicable plan, or a court, if a participant ever were to bring a legal claim against the plan or its fiduciaries. Therefore, plan sponsors who want to delegate authority to a committee (or who are acting as if they have already done so) should ask themselves the following questions:

  • What does the plan document say? It is possible that the plan already states that the committee will act as plan administrator and, if so, may outline the duties and obligations of that committee in such capacity. However, often times the sponsoring employer is also named as the plan administrator and given the discretion to delegate authority to another party.

  • If the plan does not name the committee as plan administrator, has the Board of Directors (or other governing body) of the plan sponsor formally delegated authority to the committee? This will generally be done through written resolutions, approved by the governing body prior to the committee acting in such capacity.

  • In either case, is there a written document setting forth the authority, duties, and obligations of the committee? Even if the governing body has formally delegated authority to the committee, it is important to have some written document in place to clarify what the committee can do and how it operates. This is generally accomplished through a committee charter, although sometimes the delegating resolutions or even the plan document will address these matters.

Importance of a Committee Charter -

When delegating authority to a committee with respect to a plan, it is important to document the authority, duties, and obligations of the committee and how it  will exercise its authority. The workings of a committee may be set out in a plan document, in resolutions delegating authority to the committee, or in a separate committee charter.   Regardless  of the type of documentation, the document acting as a committee charter should be kept up to  date and should contain enough detail to provide the committee with guidance on its processes and responsibilities. Ensuring that the charter is up to date and complete will minimize any confusion going forward regarding the role of the committee or its authority to act. Generally, a committee charter will include the following:

  • Rights and obligations of the committee

  • Make-up of the committee membership and how members are elected and removed

  • How the committee may approve an action

  • How the governing body delegating authority and the committee will interact

In addition to a committee charter, a plan sponsor should also formalize an investment policy statement for any committee to which it delegates investment authority. While the charter is more concerned with the workings of the committee, the investment policy statement sets forth investment goals and guidelines for the investment committee to take into account as it selects and monitors investments for a plan.

Role of Benefits Counsel in Committee Meetings -

Once the retirement plan committee has been formed and begins holding committee meetings, the committee will often invite relevant plan advisors (e.g., investment advisers, record keepers, legal counsel, and actuaries) to provide information on topics under discussion based on their individual expertise. Involving benefits legal counsel in regular committee meetings allows counsel not only to stay up to date on the current considerations before the committee, but also to discuss any concerns under applicable law regarding items raised by the committee during the meeting. This can ensure that the committee does not agree on a course of action that may be impermissible or inadvisable.  Benefits counsel can also offer education sessions for the committee members to ensure that they are aware of their fiduciary obligations under ERISA and any recent legal developments (e.g., regulatory changes and new case law) that may impact their decision making. At a minimum, benefits counsel should be made aware of any plan design or administrative changes that are being considered by the committee and be given the opportunity to comment on any legal implications or concerns before the committee formally approves such changes.

The Employee Benefits and Executive Compensation Practice Group at Hill Ward Henderson frequently advises clients regarding the structuring and documentation of retirement plan committees and attends client committee meetings to provide legal advice on retirement plan issues.

© 2007-2019 Hill Ward Henderson, All Rights Reserved

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Al Ward Executive Compensation Hill Ward Henderson
Shareholder

Al is Co-Chair of the firm's Executive Compensation & Employee Benefits practice. Al is recognized throughout the professional community for his depth of experience and knowledge in the employee benefits area. Prior to entering the practice of law, Al was an actuarial and employee benefits consultant for over eight years.

Al has focused for over four decades on executive compensation, employee benefits, trusts and taxation. He represents many clients including publicly traded and privately held, taxable or tax-...

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Kirsten Vignec Employee Benefits Attorney HIll Ward Henderson
Shareholder

Kirsten is a Shareholder in the firm's Corporate & Tax Group and practice co-chair of the Executive Compensation & Employee Benefits Group. Kirsten’s practice involves employee benefit matters associated with the design and ongoing administration of executive deferred compensation plans, welfare benefit plans, Section 401(k) plans, profit sharing plans, and pension plans. Kirsten represents tax-exempt entities, for-profit, private, and publicly-traded companies.

Kirsten represents clients before the IRS, DOL, and the PBGC with respect to employee benefits matters.

She is a member of the Tax Sections of The Florida Bar and the American Bar Association, as well as the State Bar of California and the District of Columbia Bar.

Away from the office, Kirsten enjoys travel, reading, and spending time with her husband and children.

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Bret Hamlin employee benefit lawyer Hill Ward Henderson
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Bret is a Shareholder in the firm’s Executive Compensation & Employee Benefits Group. He practices primarily in the areas of employee benefits, deferred compensation and trusts. Prior to entering the private practice of law, he provided plan design and consulting, third-party administration and investment, as well as retirement plan education services for clients. 

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Tim is an Associate in the firm’s Executive Compensation & Employee Benefits Group. His practice focuses primarily on advising client employers (private and public, tax-exempt and for-profit) on a wide variety of compensation and benefits matters, including plan design, administration and termination, compliance with applicable laws (including the Internal Revenue Code, ERISA, HIPAA, and the Affordable Care Act), and resolution of compliance issues with the Internal Revenue Service, Department of Labor and Pension Benefit Guaranty Corporation.  Tim has experience assisting...

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