chalk talk | PLANADVISER November/December 2014

Better Committee Decisions

The key is selecting the right people

By Steff C. Chalk | November/December 2014
Art by Dadu Shin

Retirement plan committees are constructed by a variety of methodologies and include an interesting collection of professionals with diverse backgrounds and experiences. If you were to analyze 10 of these groups, you would observe an eclectic set of individuals with some consistency, yes, but much diversity.

These committees reach conclusions and make decisions as a result of their own hard work. In many cases, their decisions are influenced by retirement plan advisers and other outside professional consultants such as accountants, attorneys and board members.

But is there a process for improving the constitution of each retirement committee? Can an existing panel be improved, or does any change require a complete overhaul of the retirement plan? Can a stronger panel make better decisions? For the retirement plan adviser, the real question becomes: How much influence should he have on the composition of a retirement plan committee?

Retirement plan committees today come packaged in three wrappers:

• The multiple-department-head team with a personal interest in the plan;

• The team whose leader attempts to “stack the deck” with individuals who think like he does; and

• The team whose members’ job titles and promotions confer a seat at the table of oversight.

Plan advisers see the above three scenarios and are forced to work with those groups all too frequently. It makes your job as plan adviser significantly more difficult as a result. In some cases, advisers are required to lead a committee whose members are uninterested, complacent and/or ignorant of their duties, one being the duty of loyalty.

Committee Breakdown

Early on, retirement plan committees are missing a great opportunity!

Consider the behavior and fallout that occur when a plan committee decides to engage a new adviser because it is dissatisfied or unhappy with the existing one. In summary, some type of a “search” is conducted. The committee doesn’t hire someone because he has “investment adviser” in his title. Doing so would be absurd. Consider also the process when it wants to hire the next core fixed-income manager. Does the committee look for managers that would purchase and hold only the securities it likes to own? Of course it shouldn’t. These are two examples that just appear wrong by virtue of the process, irrespective of the outcomes generated. You can help your clients avoid such poor decisions—by helping them select the right people for their retirement committees.

Why is it that companies that sponsor qualified retirement plans look first to job function or title when selecting committee members, without taking the time or effort to first learn which employees are the most qualified for the job? Overseeing a qualified plan is unlike any other task in an organization. There are people who have the specific skills to oversee the retirement plan—yet more often than not, those individuals do not serve on the relevant committees.

Sports Formula

Although it might surprise advisers, Tom Landry, who coached the Dallas Cowboys from 1960 through 1988, had a recruiting practice they would be well-served to incorporate.

Unlike retirement plan committees today, Coach Landry did not draft players because they played specific positions—instead, he would select the best athlete available at the time. Well in advance of the book and movie “Moneyball” and sabermetrics, Landry was utilizing an assessment and measurement system for identifying the best available athlete—with the sole goal of building the strongest team possible. Many advisers and executives may find this difficult, but imagine the impact if sponsors conducted regular assessments of in-house talent in order to determine the most qualified next plan committee member. These “teams” would most assuredly have a different look. The decisions made by a group that was designed around competencies and talents would, arguably, be far better. Who wins in that scenario? Everyone involved—especially the plan participants!

Steff C. Chalk is CEO of Fiduciary Consulting and Governance Group Inc., a fee-only fiduciary consulting practice serving corporations and nonprofits. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, he is also the co-author of “How to Build a Successful 401(k) and Retirement Plan Advisory Business.”