In the past, we have written several pieces to help sponsors stand up to a retirement plan committee. We have discussed members, term duration, responsibilities, and documentation. All of which is useful information, but what do you do once the committee is finalized and now they look to you for direction and training?
Standing up to a committee is the easy part, developing their knowledge and effectiveness is more difficult.
In most committees, many members don’t spend a significant portion of their time working on retirement plan issues. Whether members work in human resources, finance, or elsewhere within the organization, retirement planning is far down on their list of priorities. Additionally, because many members may only touch their retirement plan committee work for 12 hours or less annually, their ability to stay abreast of changes in law and best practices are materially compromised.
I’ve had the opportunity to work with dozens of committees during my career and it is clear to me that the effectiveness of Committees varies dramatically from organization to organization. There are two material indicators to a Committee's effectiveness: knowledge and direction.
In my experience, the more knowledgeable the committee, the more effective they become. Acting efficiently when the information dictates the need frequently comes down to how well the committee understands the questions at hand. Whether it is as simple as the replacement of an investment manager or as complicated as changing providers, committees with a low level of retirement plan familiarity are understandably hesitant to act and may require multiple meetings to finalize a decision. A more knowledgeable committee can act (or chose not to act) more quickly.
Similar to educating participants in dollar cost averaging or asset allocation, educating adults in the unique aspects of retirement plan management can be challenging. Committees should be working to develop and document education efforts. Whether education is conducted internally, or you utilize external resources, providing opportunities for the committee to stay in touch with retirement plan topics between meetings is an important opportunity to improve the effectiveness of your committee.
Tracking the training that is occurring is an excellent opportunity for the fiduciary to document their prudence and is a question likely to be asked if the Department of Labor auditors come calling. Further, if your committee members cannot or will not take advantage of the training opportunities afforded them, it may be worthwhile to reconsider their role with the committee.
Last, committees with goals outperform committees without them. As adults, we’ve all been told to write down our goals to create accountability to them. Committees should similarly have goals or objectives to improve their accountability.
Most committees have Charters that define their responsibilities and liability, as well as Investment Policies that define how they review and select investments. However, the most effective committees I have worked with also have a formal timeline addressing their priorities and a formal or informal set of goals for the Plan that help them make decisions. Without it, committees are left acting (or not acting) on suggestions and recommendations from providers and consultants without a clear understanding of the why, and with no ability to review the success of the decisions they make.
Small changes to how you orient and educate committees can have a tremendous impact on their effectiveness. Our Resource Center has a variety of training presentations which you might find to be a helpful place to start.