Why you should have a 401(k) committee and how to create one

A 401(k) committee can help improve plan management and alleviate your administrative burden.

Are you thinking about starting a 401(k) plan or have a plan and are feeling overwhelmed with your current responsibilities? If you answered “yes” to either of these questions, then it might be time to create a 401(k) committee, which can help improve plan management and alleviate your administrative burden.  Want to learn more? Read on for answers to frequently asked questions about 401(k) committees.

A 401(k) committee, composed of several staff members, provides vital oversight of your 401(k) plan. Having a 401(k) committee is not required by the Department of Labor (DOL) or the IRS, but it’s a good fiduciary practice for 401(k) plan sponsors. Not only does it help share the responsibility so one person isn’t unduly burdened, it also provides much-needed checks and balances to help the plan remain in compliance. Specifically, a 401(k) committee handles tasks such as:

• Assessing 401(k) plan vendors
• Evaluating participation statistics and employee engagement
• Reviewing investments, fees, and plan design

Most importantly, anyone who serves as a plan fiduciary should have a role on the committee because they are held legally responsible for plan decisions. In addition, it’s a good idea to have:

• Chief Operating Officer and/or Chief Financial Officer
• Human Resources Director
• One or more members of senior management
• One or more plan participants

Senior leaders can provide valuable financial insight and oversight; however, it’s also important for plan participants to have representation and input. Wondering how many people to select? It’s typically based on the size of your company – a larger company may wish to have a larger committee. To avoid tie votes, consider selecting an odd number of members.

Once you’ve selected your committee members, it’s time to appoint a chairperson to run the meetings and a secretary to document decisions.

The first step in creating a 401(k) committee is to develop a charter. Once documented, the committee charter should be carefully followed. It doesn’t have to be lengthy, but it should include:

• Committee purpose – Objectives and scope of authority, including who’s responsible for delegating that authority
• Committee structure – Number and titles of voting and non-voting members, committee roles (e.g., chair, secretary), and procedure for replacing members
• Committee meeting procedures – Meeting frequency, recurring agenda items, definition of quorum, and voting procedures
• Committee responsibilities – Review and oversight of vendors; evaluation of plan statistics, design and employee engagement; and appraisal of plan compliance and operations
• Documentation and reports – Process for recording and distributing meeting minutes and reporting obligations

Once you’ve selected your committee members and created a charter, it’s important to train members on their fiduciary duties and impress upon them the importance of acting in the best interest of plan participants and beneficiaries. With a 401(k) committee, your plan may be able to run more smoothly and effectively.