Archived Insight | January 21, 2020

Why Your Plan May Need a Retirement Committee Charter

A retirement plan committee without a charter is like a ship without a navigator — the crew would not know where they are going or how to get there.

Unfortunately, many retirement committees do not have a charter. And even those that do often find it’s not specific enough to provide adequate guidance. In order to follow retirement plan committee best practices, you need a custom charter that provides a framework for meeting its responsibilities.

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How a retirement committee charter could help your organization

A well-written retirement committee charter advises the committee of your overall retirement planning philosophy. It directs where your retirement plan should head and what path it should take. It also provides milestones and directions for handling problems.

A charter can maximize your organizational outcomes by supporting your workforce-planning objectives. It can also help your participants prepare for retirement. Finally, a properly constructed charter can help your committee defend its actions, if necessary.

Having a charter will provide an enormous benefit to your committee, helping you:

  • Establish authority: Your retirement committee charter stipulates the entity or individual to which the committee reports. It may be the organization, its board or its CEO.
  • Define purpose and goals: These include supporting your organization’s retirement plan objectives. Your retirement committee charter may also direct the group to maintain competitive positioning within your organization’s industry.
  • Determine structure: The number of committee members, the length of membership and how to select new members should all be included in the retirement committee charter. It notes what background and expertise is required and how new members should be trained.
  • Formalize procedures: These include meeting frequency and agendas. Your retirement committee charter sets procedures for voting and hearing motions. It also covers reviewing reports from delegates and others.
  • Delegate responsibilities and duties: Your charter charges the committee with assigning committee member responsibilities. It sets performance standards for administrative or HR staff that work for your committee or the plan. And it establishes standards for independent experts.

A retirement committee charter example—avoiding lawsuits

The employees and former employees of a large manufacturing company sued the two committees that administered its 401(k) plans. The court found for the participants, noting that the fiduciaries did not follow their investment policy statement. As a result, they had paid excessive recordkeeping fees. They had also failed to monitor the costs of the plan’s investment offerings.

A retirement committee with a charter would have defined roles and responsibilities for the plan’s fiduciaries. This would include the performance of the tasks in the plan’s investment policy statement.

A final thought on your retirement committee charter

Every retirement committee needs a charter to keep its plan on course. Putting a charter in place for the retirement committee’s use is a best practice and an essential component to good plan governance.

A well-written custom charter will help the committee ensure that the organization’s retirement plan meets all its goals for its participants as well as the organization. Construct an effective charter by ensuring all of the fiduciary requirements and due diligence have been taken into account.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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