Advisers Managing Heightened Retirement Plan Committee Turnover

Retirement and investment committees are crucial for advisers in moving ahead with plan approvals, investment menu changes, or new participant offerings. Even so, advisers are sometimes the last to know when a committee member moves on.

“If it’s not someone who is involved in the day-to-day operation of the plan, we might not hear about someone leaving until we are hosting the committee meeting,” says Matthew Compton, managing director of retirement solutions at Brio Benefit Consulting. “It can be a bit of a challenge.”

It’s a challenge that, according to Compton and other retirement plan advisers, is happening frequently of late as job turnover continues to be at strong rates since the pandemic. Plan sponsors have been feeling it too, with “too much turnover of committee members” ranking as the 8^th biggest challenge in plan management in the most recent Defined Contribution Trends Survey released by consultancy Callan LLC in March.

A challenge to committee turnover is that many committee members tend to be in more senior roles and have historic knowledge of the plan and decisions, says Greg Ungerman, a senior vice president at Callan and the firm’s defined contribution practice leader.

“That knowledge is important in dispensing fiduciary duties,” Ungerman says.

In recent years, turnover has hit certain industries and regions differently, whether due to COVID-19 causing retirement or job changes, or hot sectors causing people to move around, according to Ungerman. In the tech industry, for instance, there tends to be more turnover as people change jobs, which can be disruptive to plan committees, he says. In areas such as industrials, which has less corporate turnover, it may not be as much of an issue.

Revolving Door

For Compton’s Brio, which serves plan sponsors of all sizes, he says they are managing high rates of turnover in 2023.

“It’s a function of people moving and changing jobs,” Compton says. “It’s a competitive landscape and it’s tough to find good and quality talent.”

To try and get ahead of committee changes, Brio has recently added a request for plan sponsors to alert to departures or changes in membership within quarterly investment reports, according to Compton. When the firm hears of a change, the first thing they do is update the investment policy statement so it is up to date with the people responsible for the retirement plan menu. They then connect the member to a fiduciary training program given by their provider to get them up to speed on the needs and responsibilities of being a committee member.

Finally, Compton says, the committee member will be part of the quarterly investment meetings in which Brio has a practice of reminding committee members of their role and fiduciary responsibilities. He says the experience and comfort of new members often depends on the size of the client, with smaller plan sponsors sometimes having members without any experience.

“The term fiduciary should not be terrifying,” Compton says. “You just need a process to put in some of those fiduciary responsibilities and make sure the member is educated. …. Everything comes down to process when you are monitoring a plan. Like anything, committee members will get a better feel for how things work when they start participating in the meetings.”

Three-Step Plan

Julija Kod, who advises investment plan committees for Wilshire Advisors LLC as a senior vice president with institutional client services, says in the past year or so clients have had significant turnover in committee members due to retirements, as well as restructurings and layoffs stemming from the macro-economic environment. 

“It’s disruptive to the normal committee functioning and decision-making,” Kod says. “It also doesn’t help when you lose some long-term committee members who have that strong institutional memory and knowledge of why certain decisions have been taken in the past.”

Kod cites three key areas that advisers and plans can put in place to be prepared for committee turnover.

First, plan sponsors should have a strong governance process in place, she says. That includes items such as a committee charter, an investment policy statement, an annual fiduciary calendar to keep track of key dates, and strong notes—or minutes—from prior committee meetings so new members can read in and get a sense of the decision-making. The strength of these programs will often depend on how much advice and support a plan sponsor seeks from third-party experts.

“We as advisers can help and support the committee from a governance perspective as much as they want us to,” Kod says. “Frequently, committee members will have ERISA counsel and legal counsel that we can coordinate and partner with on things like policy statements and committee charters.”

The second important aspect of plan committee preparation is fiduciary training, Kod says. This is particularly true of members who don’t have any background or knowledge of investing, such as someone with expertise in human resource benefits. In this case, Wilshire can take the role of educating and providing supplement training in “investments 101.”

Finally, Kod says, it’s important for plan committees to have regular fiduciary updates in place for both new and existing committee members. These quarterly meetings can include advisers sharing information about new legislation, updates on retirement plan lawsuits, as well as larger market trends.

Outsourcing Options

When considering all that goes into running and maintaining a committee, Kod also suggests another option for plan sponsors: outsource as much as possible. That means, for some plan sponsors, moving to an ERISA 3(38) fiduciary model in which advisers take on the investment management responsibility, to delegating administrative duties to an ERISA 3(16) provider, or even, for some firms, moving to a pooled employer plan, or PEP, setup where they get the benefits of large plan administration through partnership.

“When you consider the scarcity of resources and that many plan sponsors are having to do more with less, I think it present a really good opportunity for them to consider alternative governance models,” she says. “These conversations are happening more due to this high [plan committee] turnover rates.”

Compton of Brio agrees that moving to a 3(38) can be a good move for plan sponsors struggling to keep up with the commitments of running a strong plan. He notes that when an adviser is working as a 3(21), in which they need more approvals on decision-making that, often ends up being exactly what they advise, it can delay the implementation of decisions that ultimately are in the best interests of plan participants. With a 3(38) setup the committee meetings are essentially the same, but “the investment discussion can be a little faster/smoother,” he says.

Compton notes that, with the passage of SECURE 2.0, this is an exciting time to be part of a retirement plan committee. Yes, there is responsibility, including the risk of facing a lawsuit over the decisions you make. But there is also the opportunity to help design a retirement plan that benefits your colleagues throughout the organization.

“If they’ve only been in that participant chair in past, then they are getting to see why and how the plan is changing and can be appreciate of it,” Compton says. “That can be especially true for rookie committee members.”