PLANSPONSOR - October/November 2020 - 38

ERISA EXAMINATION
Committees Need
A Checkup, Too
It's prudent for your plan committee to annually review best practices
T
ime for a checkup-say, " Ah-h-h-h. " OK, maybe not that
kind of checkup. But it is a good time to check your committee's
fiduciary " health. " We've written a lot about the ongoing
fiduciary duty to monitor a plan's investment options and service
providers to ensure the committee's decisions and processes
remain prudent. Similarly, it makes sense for the committee to
regularly review its fiduciary and governance structure, administration
and operating documents-a checkup for the committee.
Governance structure. It's important to understand who has
what fiduciary responsibilities and delegation authority. When
possible, this fiduciary delegation should be away from the
company's board of directors and to the individuals or committee
actually doing the investment and administrative work on the
plan's behalf. The plan document should generally describe the
committee and/or individuals who have fiduciary and nonfiduciary
responsibilities and what those responsibilities are.
A committee charter can provide further detail regarding the
committee, including who has authority to appoint committee
members, what the committee's responsibilities are, and how the
committee operates. We recommend that these documents be
reviewed periodically to confirm they are consistent with each
other. Further, while it's important that the plan documents lay
out the governance structure and prudent procedures, it's also key
that the people and entities working on behalf of the plan follow
those procedures. Creating a chart showing the different parties,
their responsibilities and the flow of delegation and monitoring
can provide a visual guide to illustrate the fiduciary governance
structure. This can aid in confirming that the committee, and all
other involved parties, functions in a consistent manner. We also
recommend annual training be provided to all plan fiduciaries
about their role in the plan's governance process.
Meeting attendance. Appointing members to the plan
committee is a fiduciary function. This means the person(s)
appointing those members-e.g., the board of directors, compensation
committee, CEO or others-have a duty to monitor their
involvement and actions. Further, in some of the recent fee litigation
cases, the plaintiffs-and sometimes the court-have
pointed out the lack of committee involvement by one or more
committee members. A fiduciary checkup can be a good time to
review the past year to make sure committee members regularly
attend and participate in the meetings. Attendance and active
involvement in the discussions help to show that the committee
38 PLANSPONSOR.COM October - November 2020
is acting prudently in making fiduciary decisions.
Investment policy statement. While the charter describes
the committee structure and operations, the investment policy
statement (IPS) describes the committee's process for selecting
and monitoring investment options, as well as the factors the
committee may take into consideration in making such decisions.
Even more important than having an IPS is ensuring
the committee adheres to the policy, as failure to do so may be
a fiduciary breach. Steps to help make sure the policy is followed
may include reviewing it periodically for updates as well as
supplying copies to the sponsor's outside investment adviser
and the committee members so all parties are familiar with it.
Additionally, an IPS should be drafted as guidelines rather than
hard and fast rules. This way, the committee has factors it may
consider and general steps it may take as part of the selection and
monitoring process, while retaining flexibility to make adjustments
depending on the particular facts and circumstances.
Fiduciary liability insurance. Given the number of Employee
Retirement Income Security Act (ERISA) fiduciary class actions,
plan sponsors and committee members may want some assistance
if they are called to defend against such an action. For this
reason, many employers purchase fiduciary liability insurance.
The fiduciary checkup can be a good time to confirm that this
insurance is in place and is in a sufficient amount.
Keep in mind that the plan sponsor's general insurance or
directors and officers (D&O) policy may have an ERISA exclusion
and that a specific ERISA fiduciary liability policy or rider may be
needed. The committee may consider bringing in its insurance
broker or internal risk director to discuss the fiduciary insurance
and what it covers, plus to demonstrate that the policy limits are
sufficient and reasonable. The committee may also want protection
in the form of an indemnity payable by the company along
with insurance coverage. Indemnity language in the plan document
should be reviewed and updated based on recent case law
developments and ERISA restrictions on indemnification.
Who needs an apple a day-considering these issues as part
of an annual fiduciary checkup can help to protect against breach
of fiduciary claims and to maintain a healthy plan committee.
Summer Conley is a partner in the Los Angeles office of Faegre
Drinker Biddle & Reath LLP. Michael Rosenbaum is a partner
in the firm's Chicago office.
Art by Joseph Ciardiello
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PLANSPONSOR - October/November 2020

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