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The Investment Committee - Class 302

If you attended last week's class, you've had an introduction to who a fiduciary is and their role in overseeing a 401(k) Plan. Since fiduciary best practices are typically a series of processes, the question then becomes “How do the fiduciaries manage these processes?" Join us for today's class to learn a little more about the 401(k) Investment Committee.

The 401(k) Investment Committee is a board of representatives selected to oversee the operations of the 401(k) Plan on behalf of the participants. When setting up a 401(k) for the first time or evaluating an existing plan, we need to know "Who are the fiduciaries and who are the members of the Investment Committee?” Since the members of the Investment Committee are deemed named fiduciaries, it is important that the committee has documented the fact that they are fiduciaries and the members are aware of their responsibilities and liabilities towards the plan.
Plan sponsors often ask me “Who’s a good fit for the Investment Committee?" The concept of an Investment Committee is that you are using the resources available within your organization to run a strong retirement benefit with the participants’ best interests in mind. If that’s the case, it would typically behoove the participants to have an Investment Committee that has a strong understanding a 401(k) Plans, investment options, and the needs of your particular employee population. Since not all organizations have these resources, it may benefit the Investment Committee to hire a fiduciary advisor to help maintain these processes and oversee the management of the plan on their behalf. However, even if your team hires a fiduciary advisor, it is considered a best practice to establish a formal committee to execute changes to the 401(k) over time. Some potential candidates for the Investment Committee would be the CEO, CFO, Human Resource Manager, and an employee representative. These committee members can meet as frequently as they wish but we typically recommend meeting no less than once a year to review the overall health of the plan. On a personal note, I might suggest that the Investment Committee should be made up of an odd number of members to avoid any split decisions.
So what are the responsibilities of the Investment Committee? In its most basic form, the Investment Committee is responsible for overseeing the performance of the 401(k) investment options and the costs of the investments to make sure these options have reasonable participant fees. The Department of Labor is actually more interested in the processes you have in place to monitor and manage the plan on behalf of the participants than just purely how your 401(k) Plan is performing. We’ll discuss these processes in greater detail throughout this course but the committee is responsible for implementing the Investment Policy Statement, scoring the plan’s investment options, maintaining committee meeting minutes, and housing all of this information in an ERISA file.  Although the Investment Committee is primarily focused on managing the investment options offered within the plan, the committee will often discuss and vote on other aspects of the benefit such as the third party administrator (TPA), the plan’s design, the recordkeeper, the advisor, enrollment and ongoing educational meetings, benchmarking the plan, etc.
The final question then becomes “if we are a board designed to oversee the 401(k) in the best interests of the plan participants, how do we qualify our duties in the form of policies and procedures?" Join us for next week’s class when we learn about the Investment Policy Statement and how it can serve as your playbook for deciding which investments can stay and which investments can be replaced within your 401(k) Plan.

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