Sponsors of defined contribution retirement plans have somewherenew to turn if they’re seeking guidance on best practices—andsomething high on the list is the plan’s oversight committee.

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The DC Plan Governance Survey from Callan LLC notonly offers insights into what other DC plan sponsors are doing with regard togovernance committees, but also provides a guide to best practicesfor the structure and composition of such committees, how oftenthey should meet, what sort of agendas ought to guide thosemeetings and what kind of fiduciary training needs to be in placefor members.

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The study outlines steps sponsors can take to improve committeeeffectiveness, as well as highlighting the importance of a properlystructured and resourced committee as a “critical foundation onwhich a DC plan thrives.”

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Among key findings of the study is the fact that smallercommittees work better than larger ones; says the report, “Acrosscommittee types, poor participation and clarity around rolescorresponded with a higher-than-average number of committeemembers.”

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Not only does size matter, but when it comes to largecorporations with high participant counts, they often prefer todivide their committee into two: one for administrative functionsand another for investment functions. But one thing to beware of:investment and administrative committees with an even number ofmembers were more likely to report challenges with strainedinternal resources.

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Investment committees with an even number of members, the studyfinds, were also more likely to report poor participation, whileadministrative committees with an even number had problems withmaking decisions in a timely manner. Single committees with an evennumber of members were more likely to experience challenges withclarity around roles and responsibilities.

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And just because there are committees, it doesn’t follow thatmembers have been trained in fiduciary functions. Even though mostcommittees said there was annual, or at least periodic, fiduciarytraining, nearly one in seven respondents from single committeessaid that no fiduciary training had been done.

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One other important aspect of the issue to remember: the studyfound that the party responsible for setting the agenda influencedthe committee’s priorities (i.e., staff vs. committee head).According to the study, “the committee head [set the agenda]…roughly a quarter of the time. This may indicate the committee isacting in a reactive rather than proactive fashion.”

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Respondents to the study do indicate that they believe theircommittees to be highly effective; if they do not, however, thereport reminds that “ERISA affords plan sponsors considerablelatitude for designing and maintaining their governancestructure.”

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As long as ERISA requirements are satisfied, a plan sponsor can“use any governance model that suits its nature, culture, size,demographics, and benefit plan array,” and should review itperiodically to make sure it works. If it doesn’t, the report adds,it should be modified.

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