While it may seem a nuisance to take care in forming a retirement plan committee, decisions made at this early stage will have implications later.(Photo: Fotolia)

NASHVILLE — One piece of advice a plan sponsor may be glad they followed is to create a retirement plan committee.  For one thing, it spreads the fiduciary liability across a greater swath of people, rather than piling it on a lone CFO or HR director who might not even realize the extent of their own liability.

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

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

Plan sponsors can create a single committee that monitors both investments and plan administration or multiple committees dedicated solely to each task. Corporate plans with larger numbers of participants tend to have multiple committees, Callan's 2017 Governance  Survey found, while smaller plans and nonprofits tend to have a single committee.

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

#1: Size

A 2016 Willis Towers Watson survey reported that the typical number of committee members was 4.7 people (let's call it between 4 and 5 and not chop part of Veronica-in-Finance's arm off).

Getting really granular, the WTW survey found that organizations with multiple committees for retirement plan matters averaged half a member more than those that had just single committees. And, as you might expect, given the daunting responsibility of deciding where to invest funds, there were more people on investment committees than on retirement plan committees.

Why worry about the number of people on a committee? As the Callan survey says, “Size matters.” Committees with more members than the average number actually had lower participation rates, the survey found. Presumably, it was easier for members to justify not attending, reasoning that there would still be enough people in attendance. Additionally, Callan found, there was more confusion over roles with larger committees.

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

#2: Members

Most plan sponsors appoint committee members based on titles. Willis Towers Watson says, “87 percent of organizations appoint members based on some criteria involving job titles, with 40 percent saying they appoint members solely on job title.”

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

It's also easier to replace committee members if they're not appointed by title, Callan says, because when a job becomes vacant, it might take longer to fill, leaving a gap on the committee in the meantime.

The Callan study survey also found that between 16 percent and 25 percent of committees included Human Resource Information Systems employees, but it recommended including them as non-voting members, although their input would still be valuable for any decisions affecting payroll and HR. If there are C-level executives or legal counsel who are wanted on the committee, Callan also recommends they be non-voting members.

#3: Training

You would think training, especially on fiduciary duties, would be important for a retirement plan committee. However, “nearly 1 in 7 respondents from single committees noted no fiduciary training had been done,” Callan found.

Plan sponsors struggle with educating and training committee members, but it's “imperative,” says Jeffrey A. Lieberman in Lexis Practice Advisor Journal. Members should learn about ERISA, about being a fiduciary and more, he adds.

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