Most employer-sponsored 401(k) plans are overseen by a group of individuals (often company executives) who collectively are known as the 401(k) committee. They typically gather each quarter for the committee meeting to review the information and make decisions about the plan. Thus, the committee meeting is where they do their work. 


As the founder of one of the country’s most prominent independent 401(k) plan advisers, I have often seen that the quality of the quarterly meeting ultimately determines whether a company’s 401(k) plan is good or not. By good, I mean that it is successfully preparing workers for retirement.

 

When workers are on track for retirement, it increases their financial security. A feeling of improved financial security can alleviate a significant source of stress that employees carry with them into the workplace. With less worry on their minds, they can perform at their best levels. This improved performance could enhance career growth, higher income, and overall enhanced quality of life. 

 

In this article, I will review the unique aspects of the committee member position. I will also discuss the characteristics of member engagement and its benefits to the 401(k) plan. Finally, I provide instructions on how to move your plan committee from less attention to more engagement by way of the quarterly meeting.

 

Currently, in my experience, too many 401(k) committee members are simply collectors of information and reviewers of reports. They are passive. As a result, service providers have gained significant influence over the committee. 

 

However, I do need to acknowledge that there is a good reason why so many committee members take a laissez-faire approach to their service. In many ways, it is a natural response to the structural facet of the committee. So put, being a member of your employer’s 401(k) plan committee is an unusual assignment. It is vitally important to work because it impacts workers’ financial lives and their families both now and into the future. But, for members, being on the committee often feels like it’s extra-curricular. 

 

It can feel that way for several reasons. One is that members are usually assigned to the committee based upon title instead of them seeking the appointment. The CFO, for example, is typically appointed to the committee as is the head of HR. Next, the committee’s work may not even be listed in the member’s job description. Chances are, it isn’t included in their performance review nor accounted for in their incentive plan. 

 

By law, while serving on the committee, the members must act as fiduciaries in service exclusively to the plan’s participants and beneficiaries. The employer pays them and determines their career success, but the member cannot consider the employer’s interests in their work or decisions on behalf of the plan. To do so would be a violation of the fiduciary duty of the committee. 

In this way, the work they do on the committee can begin to feel more like a volunteer activity, and as a result, they may become less engaged than they would be in other aspects of their job. To counter this propensity, it is my opinion that the committee needs to take ownership of the quarterly meeting. This will promote more engagement and independence of the committee members while simultaneously reducing the influence of plan service providers. 

 

However, from what I’ve seen, most 401(k) committees outsource the running of their meeting and the setting of their schedule to a plan service provider.[BAC2]  The plan adviser or record keeper being the most common to fill the leadership void, although occasionally the ERISA attorney may fill the role. The service providers are thrilled with the assignment, of course, because they now have become the de-facto leader. They can deflect scrutiny away from themselves in that position, which means they are more likely to retain your business.

 

For these less-engaged committees, they may prefer an easy assignment over getting results for the plan. This is precisely why many committees are glad to outsource it.

I believe that an engaged committee better serves the plan and its participants. Engagement means that they have an emotional commitment to the project and its goals. The members accept their responsibility and focus on achieving results for the plan and the participants (and their beneficiaries). They are willing to put in the necessary work. 

 

In short, engaged committee members care about the plan’s participants and understand the impact the 401(k) plan has on their lives. As a result, they are simultaneously both compassionate and results-focused. 

 

To develop member engagement, begin, if you have not already, by naming a committee chairperson. The chair should be a good planner, known for their objectivity, judgment, and diplomacy. In addition, effective chairpersons have excellent facilitation skills. This means that, when necessary, they will not be afraid to address a member who takes the group off-topic or unnecessarily continues discussions. The committee chair must be in charge but should never make decisions for the group nor steer them toward the chair’s personal preference.

 

I would suggest that you appoint them for a set period – say three years. That is enough time to become familiar with the role and learn how to do it well. It is also a brief enough time to see the light at the end of the tunnel.

 

Once appointed, it will become the chair’s responsibility to run the meeting. This will entail setting the agenda by deciding what information the committee needs to review and who will present it. This should be based upon the committee’s desired outcomes for the plan and their current priorities. Some items should be offered at all meetings. For example, review prior minutes, outstanding business, plan balances, investment line-up performance and participant outcomes (whether participants are on track for retirement). Other items might recur periodically, such as reviewing plan terms and a review of service providers and their fees.

 

To aid in setting the plan, the chair should contact each service provider (including internal staff) to see if they have information that needs to be presented or decisions that need to be authorized. After gathering everyone’s input, they can cull the list down to fit the committee’s priorities and time allotment of the meeting. 

 

In addition to naming a chair, the committee should also call a secretary. The role of the secretary is to support the chair in ensuring the smooth functioning of the committee. In addition, the secretary is typically responsible for maintaining records, upholding governing documents, and communications. 

 

Together, the chair and secretary should set the meeting date four weeks or so in advance and notify all members of the time and place. Then, supporting materials can be gathered and sent to all members and presenters. A good standard would be to send them out one week before the meeting. This gives members time to acquaint themselves with the material to prepare with comments and questions at the meeting.

 

After each meeting, the secretary should send the minutes to the chair, reviewing and revising before ultimately executing and shipping to all the members. Meeting minutes are vital to establishing procedural prudence should the committee’s actions ever be called into question. Practically, they help the committee keep moving forward. Memories fade fast, and the minutes will prevent members from re-hashing prior decisions.

 

401(k) committees owe a duty of loyalty to the plan’s participants and beneficiaries. Acting as a fiduciary, they must act exclusively in their interest. The quarterly committee meetings are the place where the oversight occurs and the decisions are made. It is where the fiduciary work gets done. To do that work well, the committee members themselves need to view their work as vital and not extra-curricular. 

 

This is despite the unusual nature of the committee member role. To overcome passive tendencies, the committee should seek member engagement. That is to be both compassionate and results-focused. The committee should own the outcomes by holding the meetings. Appoint a chairperson for the committee who will organize the work and set the agenda. Appoint a secretary who will take notes and write the meeting’s minutes. By doing so, you will establish the procedural prudence of the committee and be on your way to delivering the results the plan’s participants are counting on you to provide. Proper 401(k) oversight starts with committees owning their meetings.

Brian Allen
Brian Allen

Brian Allen (www.pension-consultants.com) is the author of Rewarding Retirement: How Fiduciary Committees Can Elevate Workers, Companies, And Communities, and Founder & Chairman of Pension Consultants, Inc., a fee-only plan adviser on a mission to improve the financial security of American workers. Allen has been an advocate for professionalism and a pioneer in the qualified retirement plan industry for more than 25 years. He was an early mover to a business model that eliminates incentives and inducements that can influence recommendations to clients, including commissions, gifts, marketing payments, and exotic trips.

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