Are you making decisions for your 401(k) plan using a prudent, documented process? Do you always put the interests of plan participants first when considering plan issues?

After more than 30 years of working on the 401(k) plans of companies as large as Apple and as small as a new start-up, I have collected the following best practices related to 401(k) plan decision-making and documentation.

Ensure you have a properly structured retirement plan committee. In order to make good decisions for your employees, you need employee input from across your organization. If you don’t have a committee that meets regularly to discuss 401(k) plan issues, create one. You need one, regardless of how big or small your plan is.

Include on your committee C-level or equivalent personnel. Make sure you have at least three employees on it and an odd number of members (to avoid tie votes). It’s best to have all of your members from a similar management level. If you cannot achieve that, the higher-level people will end up making all the decisions. For the same reason, try to keep your CEO off your committee.

I suggest calling it the “Retirement Plan Committee” rather than the “Investment Committee.” You have many things to discuss regarding your 401(k) plan and the word "investment" can send the wrong message about the committee’s responsibilities. Larger companies should consider calling their committee a “Retirement Program Committee” because it is likely they have more than one retirement plan.

Discuss the right stuff. Part of making good decisions is making sure you are discussing the right issues at the right time. Your retirement plan committee should be talking about the following items when it meets:

· Provider performance and costs.
· Investment option performance and fees.
· Company and committee member fiduciary responsibilities.
· Employee education and communication.
· Plan design and utilization.
· Employee retirement readiness.

Your investment adviser should lead your retirement plan committee meetings. Try to keep discussion about investment performance to a minimum. There is nothing you can do about it. Most committees spend at least 75% of their time talking about investment performance. That is way too much.

Making sure you have the right investment options is important, but, it should not be all-consuming. Limit changes to the investment menu to once per year, unless there is a compelling reason to make them more frequently. Compelling reasons would include a manager change or problems with the firm offering the investment.

Try to confine investment performance discussions to 25% of your total meeting time. You have a lot of other items to discuss.

Take company hats off; put participant hats on. The most challenging obstacle that committee members face when making decisions about their 401(k) plans is ensuring they are putting plan participants first. That means setting personal biases and company considerations aside — a difficult, if not impossible task for some committee members.

When I work with retirement plan committees on making particularly difficult decisions, I jokingly ask all members to take off whatever hat they were wearing when they walked through the door and put on their participant hat.

Many committee members find this difficult because they live a corporate existence of trying to please their boss and do what is best for their company. Others just can't get past certain personal biases. Keep in mind that there will be occasions when your committee will need to make decisions that are in the participant's best interest and not the company’s.

Every decision your retirement plan committee makes has to put plan participants first. If you notice that you have some committee members who cannot do that, either due to personal biases or company loyalty, do yourself and them a favor and ask them to leave your committee.

Use a sound decision-making process. This is harder than it sounds. On some issues you may have a committee member who says, “Look, this is obvious to me, let’s not waste a lot of time talking about it. Let’s just vote to do this and move on” before any discussion has taken place.

Make sure your discussions include relevant data, note opposing viewpoints and always put participant interests first. Hire consultants for areas your committee lacks knowledge and make sure you reference your plan documents (e.g., adoption agreement, investment policy statement, etc.). Many times plan document provisions will channel your decision-making process.

Remember, you cannot pick and choose which plan provisions to follow and which to ignore. Not following your plan documents can result in fiduciary breaches and personal liability.

Document your process. Every time you meet to discuss your 401(k) plan, make sure someone is taking minutes. It is not necessary to document everything that is said. Your meeting minutes generally should be no longer than one page.

Your minutes should capture the process the committee went through to make a decision, important discussion points, and documentation of the vote.

For example, with regard to hiring a new investment adviser, meeting minutes could include the following:

“The committee discussed replacement of the existing investment adviser. Results of the RFP were reviewed and Investment Adviser A appeared to committee members to be much better than all others because of... The committee voted 7-0 to hire Investment Adviser A, with Don abstaining from the vote due to a conflict.”

Take the minutes to your next committee meeting and give members a chance to review them. Vote on acceptance of the minutes and make any changes. File minutes in your plan file. I suggest never throwing meeting minutes away. Not only do they document decisions, but they also provide evidence that the committee met.

Any plan communication should also find its way into your plan files. For example, when communicating about the company match, make sure you file your communication pieces.

Not following sound decision-making processes and procedures can result in plan disqualification, fiduciary breaches, lawsuits, and personal liability. Make sure you allow a prudent process to guide your decision-making on all 401(k) plan issues.


Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC.

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Robert C. Lawton

Robert C. Lawton

Robert C. Lawton, AIF, CRPS is president of Lawton Retirement Plan Consultants, LLC, an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities.