Audits, internal struggles vex retirement plan committees

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NASHVILLE, Tenn. — Employers seeking to provide a retirement plan need the services of a retirement plan committee. Indeed, the Department of Labor’s ERISA rules require employers to establish a committee of fiduciaries responsible for the plan’s fiscal health and statutory compliance.

Last week, Employer Benefit News caught up with Susan Clausen here at the NAPA 2018 conference. Clausen, a vice president and financial advisor for CapTrust, a retirement plan consultancy based in Akron, OH, shared her insights about the challenges facing retirement committees and how best they can meet them.

EBA: What's the role of a retirement plan committee?

Susan Clausen: With any qualified plan, there is usually a delegation of authority to identify and ensure that the plan’s fiduciaries are complying with ERISA. Usually the board of directors or executive group will delegate authority to a committee in one of two ways: They either delegate authority to an executive who has the power to form the committee, or they delegate directly to a committee, which chooses a chair.

The reason for the committee is that under ERISA, you don't want the plan sponsor’s board of directors, president or CEO bearing that fiduciary liability. They don't have time to scrutinize the plan day-to-day.

EBA: What size employer or retirement plan requires a plan committee?

Clausen: Best practice is to have a committee regardless of plan size, because when the Department of Labor steps in for an audit, they want to know who is responsible for the plan’s administration and ensuring that it is in compliance with the plan document.

EBA: You said minutes of a meeting are more important than taking notes. Why?

Clausen: It has to do with risk management. When you're in a fiduciary capacity, notes are subject to court depositions. You can be deposed on those notes.

In minutes, you want to be succinct. You don't want to be “gabby” or repeat what's in the reports that are provided by your advisers or record keeper. You want to say, “Here's the committee, who is in attendance and who is excused. We discussed these topics, made these decisions like a unanimous vote to replace the fund and why.” You want to be careful to make sure you're not rambling.

During litigation, we find that statements can be made out of context and then be used by the litigators, which is why you don’t want to ramble.

See also: Department of Labor increases fines, conducts fewer ERISA audits

EBA: What does the committee do in the event of an ERISA Audit?

Clausen: The committee members are the fiduciaries who are responsible for the plan. That’s who the Department of Labor is going to talk to. They'll hand them a 33-page request for documents that need to be provided.

The committee is responsible for gathering those records and keeping the plan sponsor up-to-date about the audit. And if the DOL comes back with issues, the committee will engage and consult with an ERISA counsel as needed.

EBA: What questions does the DOL ask?

Clausen: It’s comprehensive. They're going to pull participant records and track them from their eligibility, all the way through any transactions and terminated distributions, to make sure the the plan sponsor was managing the plan in compliance. They’re also going to look at their payroll and their contribution timing, to make sure that the contributions are funded to come out within a reasonable period of time — usually three to four days.

That's where there’ve been the most penalties over the past couple of years — even for small plans. I've seen DOL audits where the funding of a contribution for a particular payroll was delayed because of a vacation or illness, and it was done a week later than their normal process. They were fined $78.

EBA: During your conference session, you mentioned that it’s better to have an odd number of committee members to avoid tie votes. What’s the ideal makeup of a committee?

Clausen: We generally recommend three, five or seven members. We don't recommend committees larger than eight people because they can become unwieldy. Some very large organizations have larger committees, but we find that four to seven is a good number.

The committees that work the best have representation from finance, HR and administration — with the administration generally attending as a non-voting guest. Typically, the makeup consists of the CFO as the chairman plus maybe a comptroller or treasurer, and then a VP of HR and maybe a manager of the retirement plan. If they have in-house counsel, we'll either see them attend the meetings or become a committee member.

Many executives see these committees as a senior management training ground, so they look to add up-and-comers as additional members.

EBA: How often should a committee meet?

Clausen: That's really up to the committee in terms of how much time is needed. We have committees that need to meet quarterly during the plan’s first year, when there's a lot of work to be done. After that, our more sophisticated large plans continue to meet on a quarterly basis, while some clients meet semi-annually with conference calls in-between, if we find something that really needs attention.

EBA: During your session, you referred to forces that can undermine a committee’s effectiveness. What are some of those forces?

Clausen: One is a committee member who doesn’t show up on a regular basis. That can be really damaging, because each person on the committee is liable for the other people committee members and their actions. Another is a dominant chair person who doesn't allow good open discussion. In a sense, they’re nullifying the committee's effectiveness. Another one would be a committee with inherent conflicts and an unwillingness to resolve them.

EBA: You also mentioned somebody who doesn't do their homework.

Clausen: That's true. We try to provide materials in advance, and we expect the committee members to take the responsibility to review those materials before coming to the meeting. Although we walk them through the content to make sure they have a clear understanding of the decisions that need to be made, if someone is unprepared or disengaged with the process, it can be detrimental for the entire committee.

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