Four business people While it mayseem a nuisance to take care in forming a retirement plancommittee, decisions made at this early stage will haveimplications later.(Photo: Fotolia)

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NASHVILLE — One piece of advice a plan sponsor may be glad theyfollowed is to create a retirement plan committee.  Forone thing, it spreads the fiduciary liability across a greaterswath of people, rather than piling it on a lone CFO or HR directorwho might not even realize the extent of their own liability.

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It's true – some plan sponsors don't know they have a fiduciaryduty to their plan. In fact, a 2016 AllianceBernstein report on plan sponsorsnoted, “A troubling 49 percent of plan sponsors do not considerthemselves a fiduciary – and that's a double-digit increase fromour previous survey.”

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A retirement plan committee also lessens the risk of bad oron-the-fly decision-making. There's something to be said for agroup of people who need a quorum to vote on a fiduciary matter.“Moreover, committees are more likely to make informed and reasoneddecisions pursuant to a deliberate process, consistent with theDOL's emphasis on the fiduciary decision-making process,” saysSheldon Geller in The CPA Journal.

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Plan sponsors can create a single committee that monitors bothinvestments and plan administration or multiple committeesdedicated solely to each task. Corporate plans with larger numbersof participants tend to have multiple committees, Callan's 2017 Governance  Surveyfound, while smaller plans and nonprofits tend to have a singlecommittee.

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And while it may seem like it wouldn't be that hard to create aretirement plan committee, decisions made at this early point willhave implications later. Here are three important qualities of aretirement plan committee that plan sponsors will want to considercarefully:

#1: Size

A 2016 Willis Towers Watson survey reported thatthe typical number of committee members was 4.7 people (let's callit between 4 and 5 and not chop part of Veronica-in-Finance's armoff).

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Getting really granular, the WTW survey found that organizationswith multiple committees for retirement plan matters averaged halfa member more than those that had just single committees. And, asyou might expect, given the daunting responsibility of decidingwhere to invest funds, there were more people on investmentcommittees than on retirement plan committees.

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Why worry about the number of people on a committee? As theCallan survey says, “Size matters.” Committees with more membersthan the average number actually had lower participation rates, thesurvey found. Presumably, it was easier for members to justify notattending, reasoning that there would still be enough people inattendance. Additionally, Callan found, there was more confusionover roles with larger committees.

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Finally, Callan raised an interesting detail about odd versuseven numbers of committee members. Committees with even numbers ofmembers “were more likely to report challenges with strainedinternal resources.” This could be a nice way of saying there weremore deadlocks on votes when there was no one to act as atiebreaker.

#2: Members

Most plan sponsors appoint committee members based on titles.Willis Towers Watson says, “87 percent oforganizations appoint members based on some criteria involving jobtitles, with 40 percent saying they appoint members solely on jobtitle.”

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Callan, too, found that many nominated members by job title;however, Callan warns, “Delegating authority or oversight for DCplans is itself considered a fiduciary act: It is important tominimize the appearance or actuality that the body delegating theauthority is selecting members based on perceived bias and intent.”Nominating by job title might be seen to fall under that perceivedbias.

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It's also easier to replace committee members if they're notappointed by title, Callan says, because when a job becomes vacant,it might take longer to fill, leaving a gap on the committee in themeantime.

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The Callan study survey also found that between 16 percent and25 percent of committees included Human Resource InformationSystems employees, but it recommended including them as non-votingmembers, although their input would still be valuable for anydecisions affecting payroll and HR. If there are C-level executivesor legal counsel who are wanted on the committee, Callan alsorecommends they be non-voting members.

#3: Training

You would think training, especially on fiduciary duties, wouldbe important for a retirement plan committee. However, “nearly 1 in7 respondents from single committees noted no fiduciary traininghad been done,” Callan found.

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Plan sponsors struggle with educating and training committeemembers, but it's “imperative,” says Jeffrey A. Lieberman inLexis Practice Advisor Journal. Members shouldlearn about ERISA, about being a fiduciary and more, he adds.

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That's a lot to deal with. So to add some peace of mind and helpin recruiting committee members, Lieberman suggests it might helpif the plan sponsor invests in fiduciary insurance.

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C.J. Marwitz

C.J. Marwitz is a writer and editor.