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.
1. What is a 401(k) committee?
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
2. Who should be on my 401(k) committee?
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.
3. How do I create a 401(k) committee?
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 should run more smoothly and effectively.