403(b) Curriculum Library

Establishing a Proper Retirement Plan Structure at Public Universities

An increasing number of retirement plan sponsors at public universities have, for the first time, considered establishing a fiduciary process at their institutions.  This is due in part to the increasing legal challenges, including fiduciary breach lawsuits, faced by some university programs, as well as the significant press coverage on the importance of proper retirement plan design and investment offerings to affect positive retirement outcomes.  Often, it is up to the human resource leaders and retirement plan sponsors to make their administration aware of the need for establishing a proper fiduciary process to manage the university’s retirement plan.  Even for non-ERISA public universities, following the best practices of ERISA is often a good starting point, and human resource leaders with private-sector experience may already be familiar with the requirements.  Ultimately, it is imperative that the institution appoint a fiduciary committee, educate the committee on its fiduciary responsibility, create the necessary governance documents and processes, and develop a communication campaign for plan participants.

The committee appointed to oversee the institution’s fiduciary responsibilities is often described as the investment committee or retirement plan committee.  Regardless of the name, the responsibilities should be documented in a committee charter.  These may include developing an investment policy statement (IPS), reviewing and monitoring the plan’s recordkeepers, reviewing and monitoring the types of asset classes offered in the plan, working with an advisor to select and monitor individual investments, and ensuring that the program meets all current and any future compliance regulations.Committees frequently range from five to seven members. Too many members can stifle the process and too few can allow certain individuals to exert influence. When appointing the committee members, care should be taken to ensure proper know-ledge and representation on the committee.  Individuals with financial expertise, such as the institution’s controller, treasurer, and vice president of finance, and those with knowledge of the university’s employee population, such as the vice president of human resources (CHRO) and the director of benefits should be considered.  Additional committee members may include members of the employee benefits committee, faculty or other representative groups, as well as union representation, if appropriate.  Faculty representation may include knowledgeable individuals from the college of business or other colleges that have faculty members with business acumen.  

Educating the committee is essential to ensure the responsibilities are being fulfilled. Proper training consists of initial education followed by annual training on relevant updates.  New committee members should be trained prior to their first meeting.  Fiduciary training should consist of topics such as defining who is a fiduciary, understanding the responsibilities of a fiduciary, managing and mitigating fiduciary risk, and current legislative and litigation-related developments.  

Developing a participant communication process is fundamental for any fiduciary committee. Ensuring that plan participants receive concise and digestible information on investment options and saving for retirement is vitally important.  Communication materials from recordkeepers are often fraught with technical jargon required for compliance purposes, and therefore difficult, from a participant’s perspective, to understand.  The committee, through its consultants, can facilitate targeted communication campaigns featuring appropriate, succinct and understandable messaging, in order to drive participant engagement.  

In summary, it is important for plan sponsors to establish a fiduciary process.  Documenting
issues that have been vetted and decisions that have been made provides some protection from the recent litigation claims and establishes the proper due diligence that is not only required by ERISA, but by many state laws, as well.  

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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