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401(k) Plan Committee Charter

“If a 401(k) plan has an investment or administrative committee, is the committee required to have a charter?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with a financial advisor from Ohio is representative of a common inquiry related to 401(k) plan committees.

Highlights of the Discussion

Neither the Department of Labor (DOL) nor the IRS, both of which regulate qualified retirement plans, specifically require that a 401(k) plan committee have a charter. However, more and more firms with plan committees are adopting committee charters as a fiduciary best practice. Practically speaking, a committee charter can help committee members understand their roles and responsibilities.

Retirement plan committee charters are distinct from an investment policy statement. (Please see Investment Policy Statement Checklist and an Education Policy Statement.)

A plan committee charter should be approved by the board of directors of the company and answer the following questions:

  • What authority does the committee have?
  • What is the committee’s purpose?
  • How is the committee structured?
  • Who may serve on the committee?
  • How are committee members replaced?
  • How will the committee delegate authority?
  • How will the committee assign responsibilities and duties?
  • How frequently will the committee meet?
  • What procedures will the committee follow?
  • What are the standing agenda items and how are new topics introduced?
  • What is the process for selecting and managing plan service providers?
  • What reporting will the committee do and to whom?
  • What are the procedures for protecting committee members financially?

Retirement plan committees that do have charters should be sure to follow them, and review them regularly to determine if adjustments are needed.

Here is a sample format:

  • Introduction
  • Purpose of the Plan Committee
  • Committee Membership
  • Schedule and Organization of Meetings
  • Authority and Responsibilities
  • Procedures for Decision Making
  • Meeting Minutes and Reports
  • Fiduciary Liability and Protection

Conclusion

For retirement plans that have investment or administrative committees, having a committee charter in place could be a good fiduciary liability mitigation tactic—as long as it is followed.

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Education Policy Statement

Education Policy Statement

“What is an Education Policy Statement for a 401(k) plan and does the Department of Labor (DOL) require a plan have one?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of Discussion

  • While the DOL does not requirement qualified retirement plans to have an education policy statement (EPS), it can be a helpful fiduciary liability reduction tool for plan sponsors who offer plan participants the ability to self-direct their account balances. It is often viewed as an extension of a plan’s investment policy statement. The EPS is the blueprint for how the fiduciaries of the plan will implement, monitor and evaluate an employee education program with respect to the plan.

 

  • ERISA 404(c) provides a mechanism for plan sponsors to shift investment responsibility to participants, provided the plan meets certain requirements. Generally, to meet the requirements of ERISA 404(c), participants must have the opportunity to 1) exercise control over their individual account; and 2) choose from a broad range of investment alternatives (DOL Reg. 2550.404c-1). As part of the ability to exercise control participants must have “…the opportunity to obtain sufficient information to make informed investment decisions.” The EPS can be the means by which plan fiduciaries document how this requirement is met.

 

While there is no prescribed format for an EPS, answering the following questions may be helpful in designing the document:

What is the purpose of the EPS?

What are the objectives of the EPS?

What are the educational goals?

Who are the responsible parties and what are their duties?

How will the education be delivered?

How will results be measured?

 

Conclusion

An EPS is a blueprint for how plan fiduciaries will implement, monitor and evaluate an employee education program with respect to a retirement plan. Although not required, an EPS could be a prudent addition to a plan sponsor’s fiduciary fulfillment file.

 

 

 

 

 

 

© Copyright 2019 Retirement Learning Center, all rights reserved