Addressing Retirement Plan Investment Committee Issues

Posted on 10-31-2017

By: Jeffrey Lieberman SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

This article identifies best practices to assist a 401(k) plan investment committee in satisfying its fiduciary obligations under the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001, et. seq., as amended) (ERISA). The focus is primarily on steps investment committees can take to monitor plan investment options and service providers.

Delegation of Authority to Committee

Plan sponsors often use an internal investment committee (the committee) to manage some or all aspects of the ERISA fiduciary responsibilities of an ERISA plan sponsor’s board of directors (the board). While the board may delegate responsibility to the plan trustee, a board more commonly delegates the duty of investment and investment service provider selection and monitoring to a committee when such delegation is not prohibited under the governing plan or trust documents.

Typically, the board’s delegation to a committee is intended to completely relinquish its ERISA fiduciary responsibilities for the selection and control of plan investments and selected service providers. Alternatively, the board may retain decision-making authority and task the committee to make recommendations to the board. The board would then decide on the ultimate selection or retention issues at hand. This alternative approach is not common, however, when the plan sponsor is a large corporation. If the board wishes, it may delegate to the same or a different committee responsibilities it retains for plan administration

When the board delegates comprehensive responsibility to a committee, it still retains some fiduciary responsibility as an appointing fiduciary. This is so regardless of whether or not the committee has been identified in governing plan or trust documents as an ERISA named fiduciary. Thus, the board should request and evaluate periodic committee reports regarding committee actions. The board may require quarterly, semi-annual, or annual reports. Annual reporting is most common

 

To read the full practice note in Lexis Practice Advisor, follow this link.

 


Jeffrey A. Lieberman is counsel to Skadden, Arps, Slate, Meager & Flom LLP. His practice focuses primarily on fiduciary issues under Title I of ERISA. He regularly counsels asset managers, investment advisors, banks, hedge funds, plan sponsors, pooled investment funds, sponsors of collateralized loan obligations and other securitized vehicles and servicers to such vehicles, issuers of various types of securities, underwriters, and trustees. He also advises private equity fund and other managers as to compliance with ERISA’s plan asset regulations and application of the venture capital operating company and other exceptions to the coverage of such funds under ERISA.


Related Content

For a sample board resolution creating an investment or other plan committee, see

> BOARD RESOLUTIONS: RETIREMENT PLAN COMMITTEE APPOINTMENT AND CHARTER ADOPTION

RESEARCH PATH: Employee Benefits & Executive Compensation > Retirement Plans > ERISA and Fiduciary Compliance > Forms

For a discussion of procedural prudence, see

> FUNDAMENTALS OF ERISA FIDUCIARY DUTIES

RESEARCH PATH: Employee Benefits & Executive Compensation > Retirement Plans > ERISA and Fiduciary Compliance > Practice Notes

For more information about ERISA 404(c) notice requirements, see

> KEY ERISA DISCLOSURE ISSUES INCLUDING SUMMARY PLAN DESCRIPTION (SPD) REQUIREMENTS AND OTHER DISCLOSURES CONCERNING BLACKOUT PERIODS, PARTICIPANTDIRECTED DEFINED CONTRIBUTION INVESTMENTS, AND EMPLOYER SECURITY INVESTMENT ALTERNATIVES AND PROSPECTUS REQUIREMENTS

and

> LIMITING LIABILITY UNDER THE ERISA SECTION 404(C) AND QUALIFIED DEFAULT INVESTMENT ALTERNATIVE SAFE HARBORS

RESEARCH PATH: Employee Benefits & Executive Compensation > Retirement Plans > ERISA and Fiduciary Compliance > Practice Notes

For a specific discussion on the service provider disclosures, see

> ERISA SECTION 408(B)(2) SERVICE PROVIDER DISCLOSURES

RESEARCH PATH: Employee Benefits & Executive Compensation > Retirement Plans > ERISA and Fiduciary Compliance > Practice Notes

For a broader discussion regarding ERISA fee litigation in individual account plans, see

> 401(K) PLAN FEE REGULATION AND LITIGATION

RESEARCH PATH: Employee Benefits & Executive Compensation > Retirement Plans > ERISA and Fiduciary Compliance > Practice Notes

For a sample investment policy statement for a defined contribution plan with participant-directed investments, see

> INVESTMENT POLICY STATEMENT (DEFINED CONTRIBUTION PLANS)

RESEARCH PATH: Employee Benefits & Executive Compensation > Retirement Plans > ERISA and Fiduciary Compliance > Forms

For guidance when selecting an investment manager, see

> INVESTMENT MANAGER HIRING CONSIDERATIONS FOR ERISA PENSION PLANS

RESEARCH PATH: Employee Benefits & Executive Compensation > Retirement Plans > ERISA and Fiduciary Compliance > Practice Notes