In many cases, your Company’s Board of Directors is not aware that they are considered 401k plan fiduciaries under ERISA. The Board is, however, able to mitigate their exposure somewhat by designating a person(s) or entity with certain specific responsibilities.
Delegating this responsibility is most typically done by establishing a 401k Committee and documenting its roles and responsibilities via a Charter document.
Charters fall into three main types:
- investment oversight (a 401k Investment Committee),
- administrative oversight (a 401k Administrative Committee),
- or both (a 401k Oversight Committee).
The Charter should specify exactly which responsibilities are being delegated by the Board to the Committee. Ideally, this document should contain signatures of each group member acknowledging their role and responsibilities.
Many plan sponsors have either a formal or an informal group who will gather periodically to review their 401k plan.Typically, this group will have representatives from the human resources and finance department. In smaller firms, the owners or principals will attend. Larger firms may have someone from the legal department.
The retirement plan consultant often helps to set the agenda and presents various reports on the health of the 401k plan. A close working relationship with the plan’s advisor can indicate a smoothly running plan.
Although this oversight group allows the Board of Directors relief from the day to day management of the plan, they cannot completely relinquish their fiduciary responsibility simply by establishing a Charter; they retain the responsibility of overseeing that the Committee is making prudent decisions.
As such, it is appropriate for the Committee to address the Board on an annual basis. This is an opportunity to apprise the Board of what has transpired since the last meeting and what is planned for the subsequent period, in terms of decisions which have material impact on the plan.
We can assist you with the proper establishment of your Committee Charter. Please contact us for more information.Related Topics
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