You Have a Retirement Plan Committee - But Do You Have a Committee Charter?
Retirement plan committees (which are sometimes broken down into separate committees such as an investment committee and/or an administrative committee) serve an important function to ensure that the plan fiduciaries fulfill their responsibilities.
While most plan sponsors utilize these committees, not all have adopted a formal committee charter. A committee charter serves to identify the governance process of the committee and the roles and responsibilities of its members. It also provides a formal document for the named fiduciaries of the plan, and other fiduciaries by function (e.g., the Board of Trustees/Directors), to delegate certain fiduciary functions to the committee. Thus, a well-drafted committee charter is often an important part of a prudent fiduciary due diligence and risk management process.
Of course, not all committees are formal committees designated by the board; some are informal staff committees, or even working groups. However, even in those cases, depending on the specific governance of the organization, it can be prudent to have a charter or similar document in place to ensure the members of the committee are aware of their responsibilities and how the committee is supposed to operate.
So, what does a good committee charter include? Here are some of the key elements:
- The mission/general purpose of the committee (e.g., Is it an investment committee? Administrative committee? Both?)
- A listing of the retirement plans subject to committee oversight
- A listing of the specific fiduciary responsibilities that have been delegated to the committee; and by whom they have been delegated (e.g., the board, a committee of the board, etc.)
- The reporting structure of the committee for those who have delegated fiduciary responsibilities (i.e., whether the committee reports to the board, a board committee, etc., as well as the format of reporting to that board/committee; e.g., an annual presentation of committee activities)
- The structure of the committee, including number of voting committee members (an odd number is recommended, to avoid tie votes), along with the titles of who should serve on the committee, both in a voting and non-voting capacity (titles, rather than names, are recommended, in order to avoid charter amendments due to turnover) as well as how committee members are selected and/or replaced
- The operating rules of the committee, including the frequency of committee meetings, what constitutes a meeting quorum, and whether votes may only take place in a meeting or can be taken by electronic or other consent
- A conflict of interest policy that states what constitutes a conflict of interest (e.g., a material relationship to one of the plan’s service providers) and what procedure should be followed in the event of a conflict
- The procedure to designate a committee chair and the list of the chairperson’s responsibilities
- The procedure to document meeting activity via minutes (e.g., designating a formal secretary)
- The procedure to amend the committee charter
Of course, plan sponsors may need to include additional provisions based on their specific governance procedures and other unique circumstances, but this list is certainly a good start. External retirement plan counsel can also be quite helpful in drafting a proper committee charter 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. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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