In recent years, plan committees have become targets of ERISA litigation. This places a premium on meeting their fiduciary obligations. While this may seem daunting, committee members need to recognize that it is not “results,” such as investment performance, that determine whether a fiduciary breach has occurred. Rather, it is following (and documenting) a prudent and deliberative decision-making process that allows fiduciaries to avoid liability. The following are some of the steps committees should follow:
- Observing Formality. Regular committee meetings should be held (preferably quarterly, if possible), with a heavy focus on formal procedures and keeping of minutes.
- Circulate an agenda and all related materials (such as vendor and adviser reports) reasonably in advance of each meeting.
- Use the agenda during the meeting as a roadmap for deliberations. A person familiar with the issues should take detailed notes in order to prepare the meeting minutes. Formal votes should be taken as appropriate.
- After the meeting, the notes should be used to draft detailed minutes. The format should be consistent from meeting to meeting, and should highlight the deliberative process followed at the meeting, with a focus on capturing the decisions reached and the key reasons for each, rather than conversational details. The minutes should be approved by all members soon after each meeting.
- Emphasizing Expert Advice. When acting on the input of an independent expert, such as an investment adviser, the minutes should reflect the specific advice given and include copies of reports from the adviser. If the committee elects not to follow the advice, the reasons should be thoroughly documented.
- Receiving Fiduciary Training. Requirements and industry standards for retirement plans are dynamic and constantly evolving. Committee members should be familiar with their basic obligations under ERISA, and should continue to receive regular fiduciary education regarding legal and regulatory developments, litigation trends and other matters that may impact their role. While this is not mandated by ERISA, it is an important facet of a prudent process. The Department of Labor has begun requesting that fiduciaries turn over evidence of fiduciary training as part of its plan investigations, so receipt of such training should be documented in committee records.
- Separation of Roles. Corporate officers and employees serving on plan committees should avoid commingling deliberations on fiduciary issues (such as selecting and monitoring investments and other service providers) with non-fiduciary issues (such as plan design considerations). All fiduciary issues should be resolved with an eye solely toward the best interests of plan participants, rather than those of the employer, to avoid conflicts of interest.
- Permanent Record Retention. Committee minutes and records should be incorporated into the employer’s permanent record retention program. In the event of litigation, the events giving rise to the claim may be years removed, and committee members should not be forced to rely on their memories to recollect details.
Following and thoroughly documenting a prudent and deliberative fiduciary process is the single most important thing a plan committee can do to insulate itself from potential liability. There are numerous “best practices” that should be followed, but adhering to these five key steps is a good start.