Au­dits, in­ter­nal strug­gles vex re­tire­ment plan com­mit­tees

CapTrust’s Su­san Clausen sounds off on the DOL’s ERISA man­date for a com­mit­tee and the chal­lenges they face in ful­fill­ing their role.

Employee Benefit News - - CONTENTS - By Phil Al­bi­nus

Em­ploy­ers seek­ing to pro­vide a re­tire­ment plan need the ser­vices of a re­tire­ment plan com­mit­tee. In­deed, the Depart­ment of La­bor’s ERISA rules re­quire em­ploy­ers to es­tab­lish a com­mit­tee of fidu­cia­ries re­spon­si­ble for the plan’s fis­cal health and statu­tory com­pli­ance. Em­ployee Ben­e­fit News re­cently caught up with Su­san Clausen, vice pres­i­dent and fi­nan­cial ad­viser for CapTrust, a re­tire­ment plan con­sul­tancy based in Akron, Ohio. She shared her in­sights about the chal­lenges fac­ing re­tire­ment com­mit­tees and how they can best ad­dress them.

Em­ployee Ben­e­fit News: What’s the role of a re­tire­ment plan com­mit­tee?

Su­san Clausen: With any qual­i­fied plan, there is usu­ally a del­e­ga­tion of au­thor­ity to iden­tify and en­sure that the plan’s fidu­cia­ries are com­ply­ing with ERISA. Usu­ally the board of direc­tors or ex­ec­u­tive group will del­e­gate au­thor­ity to a com­mit­tee in one of two ways: They ei­ther del­e­gate au­thor­ity to an ex­ec­u­tive who has the power to form the com­mit­tee, or they del­e­gate di­rectly to a com­mit­tee, which chooses a chair. The rea­son for the com­mit­tee is that un­der ERISA, you don’t want the plan spon­sor’s board of direc­tors, pres­i­dent or CEO bear­ing that fidu­ciary li­a­bil­ity. They don’t have time to scru­ti­nize the plan day-to-day.

EBN: What size em­ployer or re­tire­ment plan re­quires a plan com­mit­tee?

Clausen: Best prac­tice is to have a com­mit­tee re­gard­less of plan size, be­cause when the Depart­ment of La­bor steps in for an au­dit, they want to know who is re­spon­si­ble for the plan’s ad­min­is­tra­tion and en­sur­ing that it is in com­pli­ance with the plan doc­u­ment.

EBN: You’ve men­tioned that min­utes of a meet­ing are more im­por­tant than tak­ing notes. Why?

Clausen: It has to do with risk man­age­ment. When you’re in a fidu­ciary ca­pac­ity, notes are sub­ject to court de­po­si­tions. You can be de­posed on those notes. In min­utes, you want to be suc­cinct. You don’t want to be “gabby” or re­peat what’s in the re­ports that are pro­vided by your ad­vis­ers or record keeper. You want to say, “Here’s the com­mit­tee, who is in at­ten­dance and who is ex­cused. We dis­cussed these top­ics, made these de­ci­sions like a unan­i­mous vote to re­place the fund and why.” You want to be care­ful to make sure you’re not ram­bling. Dur­ing lit­i­ga­tion, we find that state­ments can be made out of con­text and then be used by the lit­i­ga­tors, which is why you don’t want to ram­ble.

EBN: What does the com­mit­tee do in the event of an ERISA au­dit?

Clausen: The com­mit­tee mem­bers are the fidu­cia­ries who are re­spon­si­ble for the plan. That’s who the Depart­ment of La­bor is go­ing to talk to. They’ll hand them a 33-page re­quest for doc­u­ments that need to be pro­vided. The com­mit­tee is re­spon­si­ble for gath­er­ing those records and keep­ing the plan spon­sor up-to-date about the au­dit. And if the DOL comes back with is­sues, the com­mit­tee will en­gage and con­sult with an ERISA coun­sel as needed.

EBN: What ques­tions does the DOL ask?

Clausen: It’s com­pre­hen­sive. They’re go­ing to pull par­tic­i­pant records and track them from their el­i­gi­bil­ity, all the way through any trans­ac­tions and ter­mi­nated dis­tri­bu­tions, to make sure the plan spon- sor was man­ag­ing the plan in com­pli­ance. They’re also go­ing to look at their payroll and their con­tri­bu­tion tim­ing, to make sure that the con­tri­bu­tions are funded to come out within a rea­son­able pe­riod of time — usu­ally three to four days. That’s where there’ve been the most penal­ties over the past cou­ple of years — even for small plans. I’ve seen DOL au­dits where the fund­ing of a con­tri­bu­tion for a par­tic­u­lar payroll was de­layed be­cause of a va­ca­tion or ill­ness, and it was done a week later than their nor­mal process. They were fined $78.

EBN: I heard you men­tion that it’s bet­ter to have an odd num­ber of com­mit­tee mem­bers to avoid tie votes. What’s the ideal makeup of a com­mit­tee?

Clausen: We gen­er­ally rec­om­mend three, five or seven mem­bers. We don’t rec­om­mend com­mit­tees larger than eight peo­ple be­cause they can be­come un­wieldy. Some very large or­ga­ni­za­tions have larger com­mit­tees, but we find that four to seven is a good num­ber. The com­mit­tees that work the best have rep­re­sen­ta­tion from fi­nance, HR and ad­min­is­tra­tion — with the ad­min­is­tra­tion gen­er­ally at­tend­ing as a non-vot­ing guest. Typ­i­cally, the makeup con­sists of the CFO as the chair­man plus maybe a comptroller or trea­surer, and then a VP of HR and maybe a man­ager of the re­tire­ment plan. If they have in-house coun­sel, we’ll ei­ther see them at­tend the meet­ings or be­come a com­mit­tee mem­ber. Many ex­ec­u­tives see these com­mit­tees as a se­nior man­age­ment train­ing ground, so they look to add up-and-com­ers as ad­di­tional mem­bers.

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