EMPLOYEE BENEFIT PLANS

The Importance of An Investment Committee

Kimberly A. Reed
Principal, CPA

14 June 2021

As a plan sponsor, it is important to understand your fiduciary responsibilities under the Employee Retirement Income Securities Act of 1974 (“ERISA”).

These responsibilities include:

  1. acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  2. carrying out their duties prudently;
  3. following the plan documents;
  4. diversifying plan investments; and
  5. paying only reasonable plan expenses.

Establishing an investment committee to manage the investment process of the plan is a best practice for plan sponsors. It will help to clearly define and document a process of plan oversight and ensure the responsibilities listed above are satisfied.

When establishing an investment committee, it is important that committee members are educated on ERISA, including their fiduciary duties. Members should have a good understanding of the provisions outlined in the plan document for managing the plan’s assets, including the plan’s investment strategy. It is the responsibility of committee members to stay up to date with changes in ERISA regulations that affect the plan.

Meetings should be held regularly, ideally quarterly, to review and discuss relevant information such as monitoring the market performance and evaluating fund performances, changes in ERISA regulations, and the plan’s current fee structure. One of the primary purposes of investment committees is to monitor the cost of the plan. Investment committees should closely monitor the cost of all providers, including the trustee, custodian, recordkeeper, investment advisor, auditor and any other consultant used by the plan.

Minutes should be taken at every investment committee meeting and reviewed and approved at the following meeting. ERISA requires plan sponsors to use a prudent decision-making process when making decisions about their retirement plans. One of the key responsibilities of the investment committee is to demonstrate that a prudent process is in place and being followed for making decisions. This is done through documentation of meeting activities and any decisions made.

The ultimate responsibility of the plan sponsor and the investment committee would be to protect the interests of plan participants. An effective committee ensures fiduciary responsibilities of plan sponsors and investment committee members are being fulfilled and allows the plan to remain competitive, offering the best fund options for the participants.

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