This quarter I had two client meetings where a new member was added to the Plan’s fiduciary committee. This isn’t an uncommon occurrence. All established fiduciary committees will experience some level of turnover over time, either because of self-imposed term limits or because of the natural turnover of employees joining or leaving an organization, or switching roles within an organization.
Integrating a new member can be cumbersome. They usually lack the institutional knowledge to understand how the committee has come together, what the roles and responsibilities of the respective committee members are, and what decisions have been made in the past by the committee and the institution concerning the retirement plan.
To integrate a new member into the fiduciary committee, we believe it is necessary to have a formalized training program specifically for the new committee member. This training program focuses on three distinct areas of education: understanding fiduciary responsibilities, familiarizing yourself with the Plan’s governing documents, and understanding the Plan’s achievements and current events.
Understanding Fiduciary Responsibilities
I have yet to have a client whose fiduciary committee members were full-time plan fiduciaries with no other responsibilities in their job. As an experienced consultant who deals with fiduciary responsibilities every day, I sometimes forget the clients I work with aren’t steeped in the language of fiduciary responsibility, living and breathing it every day. Similarly, many long-time committee members forget what it was once like to be a new committee member and to hear the “fiduciary” word for the first time.
To get a new committee member acclimated to his/her fiduciary responsibilities, it is important to provide a primer on the basics of the law from which fiduciary responsibility is derived and what that means for the individual serving in a fiduciary capacity. It can also be helpful to provide any materials related to protections the plan sponsor will provide for those willing to take on fiduciary responsibility related to the Plan (i.e. indemnification, insurance, etc.).
The Plan’s Governing Documents
To be effective, a new committee member needs to understand his/her role and the responsibilities that he/she has, as well as the processes for making decisions regarding the plan. The best way to understand that is to review the Plan’s specific governing documents. These documents vary by plan and committee but typically include a committee charter, investment policy statement, and at a minimum include the plan document.
The committee charter establishes the authority of the committee and delegates certain specific responsibilities from the plan sponsor (typically the board) to the committee. Reading the charter should give a new member a sense of what he/she is supposed to be doing. Also, reading the charter should help a new member understand what he/she is not going to be doing. In some cases, new committee members join thinking they will have input on settlor functions (for example, helping decide on employer contributions or other plan design decisions). While some committees may address these topics and provide recommendations to the Plan’s settlor, these decisions are not typically the purview of the committee members operating in their fiduciary role.
The investment policy statement governs the process for selecting and monitoring the investment options available within the Plan. Selection and monitoring of investment options is a primary responsibility of most committees, and all committee members should be aware of the process as defined in the investment policy statement and the criteria that are to be used in evaluation.
The plan document is the overall governing document for the Plan. While new committee members don’t need to be as intimately familiar with it as those specifically tasked with administering the Plan (i.e. human resources, payroll, and benefits staff), they should have a general understanding of the plan design and plan provisions.
The Plan’s Achievements and Current Events
Lastly, the new committee member training should bring the new member up to speed on the Plan, which vendors they use, how the investment menu has been structured, and what products are included in the menu, among other plan initiatives and priorities. The context of the Plan is incredibly important in trying to evaluate decisions that are put before the committee as committee members seek to prioritize among a broad set of fiduciary responsibilities, which can often feel overwhelming to even the most diligent fiduciaries.
Unfortunately, many committees don’t do a very good job of laying this foundation and providing the right context, leading to problems with committees having to back-track to relitigate prior decisions; many times, the committee has to change their agenda priorities to address the new member’s questions because of failure to provide the proper context for fiduciary decision making. To gain that context, new committee members should review past meeting minutes, past investment reports, and speak with existing members to gain the institutional knowledge that the existing members maintain. If they do that outside of the committee meetings, they will be better able to participate in the decision-making and the committee meetings will be more efficient and proactive.
Summary
Turnover among plan fiduciaries is a natural occurrence. When organized and proactive, it can breathe new perspectives and fresh insights into a committee. When done poorly, it can lead to frustrations among both new and old members and slow down the progress of the Plan. If you would like help organizing your fiduciary process, feel free to reach out to us.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.
Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.