It has become a common trend in the 401(k) marketplace to place the responsibility of investment selection on the participants in the plan. This does not, however, shift fiduciary responsibility from the party(ies) charged with oversight over the plan onto the participants.

The Employee Retirement Income Security Act of 1974 (ERISA) was designed to protect participants, not the plan administrator, or the plan sponsor. Under ERISA, plan sponsors are responsible for providing participants with appropriate investment options in order to allow them to diversify and avoid the risk of large losses within their accounts.

An investment committee is important to the plan sponsor because it demonstrates that fiduciary responsibility is being fulfilled. The members of the plan’s investment committee do not need to be investment experts; however, they need to be committed to working in the best interest of the plan participants regarding the operations and the investment options of the plan.

Some best practices for benefit plan investment committees are as follows:

1. Formalize, through a written charter, the duties and responsibilities of the investment committee.
2. Conduct regular meetings (at least annually); include investment advisors or consultants hired by the plan.
3. Adopt a written investment policy statement, and review it at each meeting to ensure it remains relevant and up to date.
4. Review investment reports in detail prior to investment committee meetings in order to conduct effective meetings and have meaningful conversations.
5. Document all investment committee meetings. This should include the date, who was in attendance, the topics of discussion, and conclusions reached.
6. Maintain an audit file. This should include all plan documents, minutes of investment committee meetings, agreements and contracts with service providers, investment reports, investment policy statement, RFP’s for services and any other documents related to the plan.

The overall objective of establishing an investment committee is to reduce fiduciary risk. By choosing the right committee members and conducting effective committee meetings, the plan’s management will be able to demonstrate its compliance with ERISA, the Department of Labor and Internal Revenue Service rules and regulations related to its fiduciary responsibility.

If you would like more information on creating an investment committee for your employee benefit plan please contact Jessie Kanter or any member of our Retirement Plan Services Team. Make sure your are meeting plan objectives and have a statement that includes all required information.