Reader Poll: What’s the Best Committee Structure(s)?

There is perhaps no “perfect” number of committees and committee members to watch over a qualified retirement plan—but this week we asked NAPA-Net readers to weigh in with what they see—and recommend.

It’s a question I get from plan sponsors with some frequency, and while my response is nearly always a qualified “it depends,” there would seem to be certain rules of thumb with regard to building, running and maintaining the well-functioning oversight of a qualified retirement plan.

The vast majority (85%) of this week’s respondents work with a single committee for everything, though 9% have one for investments, and one for administration/design issues. Just over 6% have separate committees, but the same individuals serve on both. Those results, at least for plurality (42%) of this week’s respondents, didn’t change with plan size (though a third noted that larger plans warranted more/separate committees)—with the rest acknowledging that, since they mostly worked with plans of the same size, differentiation was irrelevant. That said, and as you might expect, it wasn’t quite that simple in every case.

“I would say we are 50%/50% between Separate Committees but they consist of the same individuals and One Committee for everything,” explained one reader. “With those Committees that are ‘One for Everything’ they do split their focus between focusing on Investments vs. Administration.”

Another commented,“Depends on the size of the plan, most under 50 million have one committee doing both,” while another noted “Definitely separate administration & communication committees for ESOP plans.”

“In the ‘micro’ plan space it is usually ownership that determines plan design (and HR to sit in for operations), and we include employees for investment meetings,” noted another. “I have one client who pulls in employees to ‘democratize’ the investment review process. Plan design decisions are just with CFO and HR management,” explained another reader. For another, “We handle administrative issues with staff separately from the overall design issues.”

Some additional observations:

“Publicly traded companies sometimes have one committee for administration and a separate investment committee—otherwise one single committee seems to work best.”

“The differentiator appears to me that if the Committee has hired an ERISA 3(38) Investment Manager, then they have gone to a single committee—otherwise two committees with essentially the same people.”

“One for the qualified plan and usually a subset of that committee for the NQ plan.”

“Aha! It depends. Generally, it may be either just one for everything or one for investments, another for administration/design. Also, generally, the larger the organization the more likely you will find separate committees.”

“A task force is convened for education, administration and they make recommendations to the committee, but no separate committee for each facet of plan operation.”

“Separate committees with significant overlap of members (but not identical).”

“Non-profits tend to have a plan committee and an investment committee. The investment committee is typically all or part of the non-profit’s Finance Committee.”

“We have a couple of clients with separate investment/administration committees, but most just have one. The clients with separate administration committees rarely have administration committee meetings.”

“Some clients do have 2 committees. With these, we’ve seen: an investment committee and a trustee committee, and an investment committee and an oversight committee.”

As for the issue/implications of plan size:

Generally larger plans may require separate committees given the volume of issues and topics they deal with. It is possible to have one committee for very large plans, but the meetings tend to be longer and it may not be the most efficient use of the members’ time. Employer stock especially may require separate committees.

Though employer stock should have a separate focus; the plan sponsor may engage an independent fiduciary there.

No, it doesn’t vary by size but some of our government clients have to take material changes and documents like IPS to a commission or city council.

The administration firm for our ESOPs is the same as for the 401k plan so we handle it all under one committee. We just maintain separate documentation.

ESOP definitely has its own committee however often the members are the same but not always. Having a separate committee for employer stock as investment option within the plan seems redundant. Just would require additional consideration and oversight.

Not necessarily size but the size of their HR and finance teams with hands in the plan.

Realistically, plan size might dictate independent committees. Employer stock would also dictate committee diversity.

Next we asked readers if there was a document in place that formalized which job positions/titles participate in these committees. For 1 in 20 (7%) the answer was simply either “yes” or “yes, for most plans,” though for a plurality (37%) there was for “some plans, not all,” while approximately half that number (17%) noted that they not only had such a document, but that it was a formal document. The rest, of course, did not.

Some additional observations/clarifications:

Should not be job specific

Delegation charter from the named plan fiduciary, usually the board.

No, but formal committee charters/documents are proposed as part of a best-practice effort. Plans just don’t see/feel the need.

Sometimes based on title, sometimes by individual name

We do not select committee members by job position. That said, it usually has (at least) someone from HR and someone from finance.

Some clients resist a formal committee

Some plans choose to have a committee charter.

Committee Charter, although designating by title not necessarily most common practice.

Plan document should indicate how committees are filled. Sometimes document will identify corporate positions that automatically get seated as committee members; other times the document will empower a person or another body to make all committee appointments (e.g., committee members are appointed by the Board).

Most of my clients have a committee charter that identifies positions/departments of committee members without names

Depending on the size of the entity, it may be by job title or it may have the actual individuals name.

No most of our plans are appointed members by the board or the ceo/executive director.

Some positions are mandatory—such as director or benefits or total rewards and some are more generic—“a representative from the finance division.”

Some plans, but not all. It is typically a Board Resolution that appoints the committee and some of these resolutions name the specific person that will be on the committee, some name the position, and most frequently, the resolution simply says the board outsources the duties to a committee.

As for the size of those committees, we asked readers what they typically recommended as the most efficient committee size:

59% – less than 5

37% – 5-7

1% – 7-10

But the real “secret”—as you’ll see below—is that it needs to be “odd”:

I’m always happy with a committee of less than 5, but I find generally that around 5 is the correct number.

It depends. For most keeping it simple I believe is the most efficient. We do not want too many Chiefs.

We work with smaller companies, so typically like 3 committee members.

I like 3 or 5 depending on the organization’s size

It is relative to the size of the company. Could be CEO and Controller only, or partners with 5-10 employees.

Larger plans warrant more members

Either 3 or 5 so there are no ties on items to be voted on. Anything less isn’t really committee, and anything more is a nightmare!

5-7 is good. Small enough to be manageable. Large enough to allow a range of skills and experience to participate. Also large enough to permit functioning in cases of absences. Also best to keep it an odd number, to avoid tie votes. Very large and very decentralized entities (think of a large, national foundation with many chapters) typically have larger committees, because there is a greater need to have the committee be ‘representative’ of the decentralized organization.

Five is the magic number, but anywhere from 3-7 works. The biggest criteria is commitment to show up. When asked how to shape the committee, typically balance is achieve with representation from finance & HR. However, committee representation based on division (ex, HR, Finance, R&D/Engineer and/or Legal). Some groups favor having their internal counsel as part of the committee, other adamant that Legal is not a committee member. Other diversification can occur by geography, if Divisions are in different parts of the country.

Will have other non-voting members participate in Committee meetings as needed to provide additional information or that will be implementing any changes.

Generally, the Committee would be 3-5 members, for larger >$100mn, we see additional “invited guests” to attend who do not have a formal committee vote.

Usually an odd number is best at least 3 most often 5-7.

Seven is ideal; enough to avoid quorum issue, yet not too large. Also an odd number to break ties.

Once again, it depends! Generally, I recommend 12 and under depending on employer size.

At least 3 and not more than 5. Doesn’t always work out that way.

Always recommend an odd number, 5 is typical

Usually 5 or less members, usually recommend an odd number of voting members to ensure there are no ties.

Other Comments

And while there were plenty of comments throughout the responses, here’s a sampling of some to close us out:

I work primarily with micro plans and am concerned DOL audits re: committees might be having a larger impact in the future. I am working on more training for my plan sponsors who wear many hats and my not be aware of the liability involved with their decisions and how they have kept records (or not kept records, as the case may be).

We strive for an odd number though have NEVER had a split vote.

In general, minimum for any client is 3 members. As plans start getting over $50 million, we usually see more like 5. We always recommend odd number so no risk of tie votes. Committee meetings are still conducted each quarter and are still running 1.5 to 2.0 hours but I think I speak for all our clients… enough Zoom!!! Really not optimal for debates and discussions (especially when someone doesn’t realize they’re on mute).

We always encourage including a rank and file for investment decisions because they are a great advocate and cheerleader for the plan, especially when there is a match.

We prefer quarterly or semi-annual committee meetings based on plan size.

Always have odd number of committee members. Always have a formal way of removing the committee members.

Engaged Committee members are key; virtual meetings will change the dynamic of meetings and client relationships; committee meetings should have actionable content

Odd numbers for voting purposes. 3 or 5.

Size of committees will also depend on the size of the companies. While 5-7 members would be our suggestion, some small companies aren’t able to allocate that many people.

Committee Charter is to Committee as Plan Document is to plan! Have experienced little, if any, drop in fiduciary productivity with the switch to virtual committee meetings.

Due to the pandemic, you realize more and more committee meetings now and in the future will be virtual. This is especially true where several of the committee members have to travel to attend.

We prefer semiannual and if there is a large project, i.e., conversion or significant changes happening, then moving to a quarterly basis.

Always want an odd number so there are no ties when voting! 3, 5, 7 are good; 2,4, 6 not so good.

I think committees should meet quarterly regardless of plan size. It is a good opportunity to stay on top of responsibilities to ensure something doesn’t fall through the cracks. Committee meetings need to be more than an investment menu review. I am looking forward to hearing these responses.

For most plans, semiannual is frequently enough to meet.

Large committees can be inefficient, but sometimes small committees full of people who don’t want any liability are the most challenging—the decision paralysis is exhausting.

Thanks to everyone who participated in our weekly NAPA-Net Reader Poll!