A Careful Inspection

The need for employers to juggle many priorities, as is required in these challenging times, seems to be here to stay—at least for the foreseeable future. To add to that, a retirement plan’s committee still must fulfill its fiduciary responsibilities.

“Fiduciaries are still fiduciaries, and they need to make sure that nothing slips through the cracks,” says President Mark Wetzel of Fiduciary Investment Advisors LLC in Windsor, Connecticut. “The key is paying attention to the details.”

Six plan advisers talked about how they help plan sponsors mind all of the details, and the rest.

The Committee Setup

If a plan committee lacks a charter, an adviser can help put one together, to set the ground rules for how that body operates.

“I’ve talked to many new clients whose committees have not formally established themselves with a charter. In many cases, the organization didn’t understand how important the fiduciary responsibility is, so the committee kind of fell into place,” says Jake Winegrad, a partner in Moneta Group, in St. Louis. “We have a charter template to help identify and solidify a committee, to help the committee members understand their roles and responsibilities.” He says that having a charter also helps a company’s senior executives and owners who are not on the committee understand the seriousness of the fiduciary responsibility that committee members have assumed.

Now also may be a good time to review who is on the committee and its size. Three members—a human resources (HR) representative, a finance representative and a senior executive of the company—often works well, says Managing Principal Michael Montgomery of Montgomery Retirement Plan Advisors in Tampa, Florida. Sometimes it also makes sense to have a fourth, and possibly a fifth, member who specializes in an area such as payroll or benefits, he adds.

“But we suggest against really large committees, because it tends to reduce accountability,” he says. “Either you have something like a 13-person committee that is really being run by a core group of three to five people anyway, or it becomes difficult to get a committee consensus due to people not attending meetings or not actually being interested in the committee’s work.”

Fiduciary Investment Advisors regularly does fiduciary training for committees to explain the key fiduciary responsibilities they have. “The DOL [Department of Labor] is now asking sponsors about their committee’s fiduciary education, so, for protection, it’s important to do it annually,” Wetzel says. “But beyond that, it’s also important for new committee members to get up to speed and for remaining committee members to get a refresher on their responsibilities.”

Making Virtual Meetings Worthwhile

As the pandemic continues, virtual committee meetings are here to stay, Wetzel predicts. “I don’t envision that companies are going to be bringing in outsiders to their offices anytime soon,” he says. Even once the pandemic subsides, “My expectation for the future is that, if committees had four in-person meetings a year before, many will go to two in-person and two virtual, or even one in-person and three virtual,” he says.

Of course, virtual meetings present unique potential challenges. The advisers discussed how to deal with three of these:

• Help time-pressured members. Most of Winegrad’s client committee members have many other responsibilities besides the retirement plan, so they may be focused on more immediate concerns such as layoffs or how to bring back staff. Asked how he would encourage overwhelmed committee members to keep prioritizing their fiduciary responsibilities, he says, “Much of it is educating them about how immense the fiduciary responsibility is. The past few years have seen many participant lawsuits, and that gives an adviser more firepower to help him convey how serious this is.”

PlanPILOT in Chicago has stepped forward in a number of ways recently to help committees perform smaller tasks not necessarily in their service agreement but that help time-pressed committee members, says Managing Director Mark Olsen. This includes sometimes taking the lead on scheduling committee meetings and taking the first crack at putting together the agenda or the meeting minutes. “We also are very upfront in saying, ‘We know your time is precious now, so let’s focus in the committee meetings on what’s most pressing—such as investment reviews and regulatory changes—and reprioritize other things for another date,’” he says.

• Proactively educate new fiduciaries. It is especially important for people new to a committee, and to the fiduciary role, to get training and ongoing mentoring, even if that can only be done virtually now, Winegrad says. “It’s really incumbent on the plan’s adviser and on more-senior members of the committee to help these people understand their role,” he says. He avoids legal or technical jargon when explaining to them what that is and focuses on helping them understand the weightiness of their responsibility.

“I tell them, ‘You are now in a position that you’re making decisions about money that isn’t yours,’” Winegrad continues. “It’s important for them to understand that fiduciary liability is a personal liability, and if they don’t meet their responsibilities and then get sued by participants, it can seriously affect them and their family. I also tell them that if they’re always making decisions that are in the best interests of the plan’s participants, they’re generally going to be fine.”

To help them feel acclimated in their first committee meeting, PlanPILOT finds out beforehand if any new members have joined. It then reaches out to them to schedule a brief, two-part orientation, Olsen says.

The first part is a conversation an adviser has with the new member, typically lasting 20 to 25 minutes, that includes a high-level discussion about what it means to be a good fiduciary. New committee members also sign documents confirming their understanding that they are a fiduciary, and that they have no conflicts of interest. The orientation’s second part centers on watching a brief video that discusses the critical things to concentrate on in PlanPILOT’s quarterly investment reviews.

• Maintain people’s attention during meetings. Considering that they, like so many other people, may be working from home, there is more potential for committee members’ attention to drift. In the past few months, PlanPILOT has learned some lessons about how to prevent this. The advisory firm initially would begin the meeting with all of the committee members visible, in their individual “tiles,” and then the on-screen visual would switch to the adviser sharing his screen and the documents being reviewed.

“But we realized that, when we shared our screen constantly, we didn’t know if people were engaged or even still watching,” Olsen says. Now, they keep the individuals’ tiles on the screen as much as possible. “When it comes to the point when there’s going to be discussion about making a decision, rather than leaving the screen on the last page of the document we’ve been reviewing, we come back out to the screen of tiles and have some discussion,” he says.

Ongoing Processes

Besides a charter, it helps for a committee to have an annual fiduciary calendar to help guide its work. “It’s important to have an established fiduciary process in place, versus focusing on just having committee get-togethers and then winging it from there,” Montgomery says. “Having a checklist of its annual fiduciary duties gives a committee something concrete to make sure it’s doing what it needs to do to fulfill those duties.”

Fiduciary Investment Advisors puts together a fiduciary governance calendar for committees every year, specifying what needs to be done each quarter. For example, the third-quarter meeting’s to-do list includes a recordkeeper services update, plan design benchmarking, and a review of participant education and advice for this year, as well as preliminary discussion of next year’s education goals, Wetzel says.

To aid committees with key ongoing processes during this time, the advisers suggest providing help in the following areas:

• Investment reviews. “The most challenging part of this year, with the market’s volatility, has been to keep the committee from panicking”—and hence making unwarranted fund changes—or blaming itself for not foreseeing the coming market downturn, Montgomery says. “So we re-explain our monitoring system, and explain why it’s possible for a highly rated fund to decline in some circumstances, and why investments such as actively managed bond funds can have performance that differs from their index.”

• Fee reviews. It is difficult for many plan sponsors to stay on top of all of the cost reductions currently going on for investment products, says Senior Managing Director Michael Annin of Mesirow Financial in Chicago. “You don’t want to be in a position as a plan fiduciary of having participants pay higher-than-needed investment management fees—that’s where the [participant] litigation is coming in,” he says. “There’s fee compression for investment management, at the mutual fund level and the managed account level, so it’s worth asking, ‘Is there a better deal?’”

Chairvolotti Financial Inc. in Winter Park, Florida, is benchmarking plans’ recordkeeping services and fees, and, in some cases, renegotiating with recordkeepers. “With the recordkeeper-consolidation trend, the only way you can know where you stand is by benchmarking fees and going to the recordkeeper with the results,” says President and CEO Edward Chairvolotti. “By renegotiating, we’ve seen some huge reductions—as much as 50%—in participant fees. This is a good time to renegotiate, because the recordkeepers that are staying want to keep a plan’s business.”

• Regulatory updates. One of the biggest challenges now for committees is keeping up with all of the regulatory changes, Annin says. “In rapid succession, we had the SECURE [Setting Every Community Up for Retirement Enhancement] Act and the CARES [Coronavirus Aid, Relief and Economic Security] Act. Those are two pretty significant pieces of legislation, and sponsors need to understand what it all means for their plan,” he says. “One thing we’re watching is the new pooled employer plans [PEPs]. That’s potentially a huge change for employers, especially small employers that don’t have the time or interest in keeping up with all of the fiduciary responsibilities. Something to help these employers think through now is how involved do they want to be in their plan? Do they want to have a say in fiduciary decisions or outsource as much as they can?”

• Documentation. For a committee, keeping fiduciary responsibilities fulfilled also requires taking the time to document they have done so. “One of the basic, biggest things is always making sure to do the meeting minutes,” Winegrad says. “That’s the first layer, in case someone [such as an auditor] later asks questions. It’s an easy way to show that you’re organized. Beyond that, when the committee makes any major decision on the plan, it needs to be documented why that decision was made and how it’s in the best interests of participants.”

An adviser can play a key role in ensuring that a plan’s fiduciary file stays up to date, and Chairvolotti Financial utilizes fiduciary-management software for that purpose. “We document the client’s meetings, our investment reviews and anything outside of the norm, such as IRS voluntary plan corrections,” Chairvolotti says. “We do most of that work. We have smaller companies as our clients, so they’re not professional sponsors. I tell the business owners, ‘I’m a business owner myself, a sponsor of our plan, a 3(38) fiduciary for our plan and a participant in our plan, so I think I have a good feel for what you need in a fiduciary file.’”

Art by Arom Ju