Fiduciary Committees and Meeting Minutes: Building a Record of Prudence

When courts and the Department of Labor evaluate whether 401(k) fiduciaries acted prudently, they focus less on outcomes and more on process. Did the fiduciaries gather relevant information? Did they consider it? Did they reach a reasonable decision?

A fiduciary committee provides the structure for that process. Meeting minutes provide the evidence that it happened.

Who your fiduciaries are

Every plan document names at least one named fiduciary, often the sponsoring company itself. A company acts through people, so in practice the owners, officers, and employees who make decisions about the plan are performing fiduciary functions, whether or not they think of themselves that way.

A committee formalizes who those people are and what they are responsible for.

Forming a committee

A fiduciary committee is typically appointed in writing by the company's board or owners. A short committee charter should describe:

• The committee's purpose and authority, such as investment oversight, plan administration, or both
• Membership, and how members are appointed and removed
• How often the committee meets
• Quorum and voting rules
• The committee's ability to hire and rely on advisors
• How the committee reports to the board or owners

Three to five members is common. In a very small company, the committee may be two people.

Who should serve

Good committee members bring relevant knowledge and the time to participate. Finance, human resources, and operations leaders are common choices. Members should understand that they must act solely in the interest of plan participants, even if their own role in the company might suggest a different priority.

Training and protection

New committee members should receive fiduciary training, with periodic refreshers. Document the training in the fiduciary file.

Committee members also deserve protection. Many companies carry fiduciary liability insurance and indemnify committee members for actions taken in good faith. ERISA permits an employer to indemnify fiduciaries, but the plan itself cannot relieve a fiduciary of responsibility for a breach.

What to cover at meetings

Most committees meet quarterly or twice a year, and at least annually. A typical agenda includes:

• Investment review against the Investment Policy Statement
• Fee and service provider review, including 408(b)(2) disclosures and benchmarking
• Operational compliance, such as deposit timing, testing results, Form 5500, and fidelity bond coverage
• Participant metrics, such as participation, deferral rates, loans, and hardship withdrawals
• Plan design questions that have come up since the last meeting
• Regulatory updates, such as upcoming amendment deadlines
• Follow-up on prior action items

Writing good minutes

Minutes should be clear enough that someone reading them years later can understand what the committee considered and why it decided what it did. Good minutes include:

• Date, time, and attendees, including advisors
• Materials reviewed
• A concise summary of the discussion
• Decisions made and the reasoning behind them
• Any dissenting views
• Action items, with who is responsible and when
• The date of the next meeting

Minutes should generally avoid verbatim transcripts, casual remarks, speculation, and conclusions without reasoning. Discussions with legal counsel may need separate treatment to preserve privilege.

Minutes should be reviewed and approved at the following meeting.

An example entry

Here is what a useful minute entry might look like:

The committee reviewed the third-quarter investment report prepared by the plan's investment advisor. The large-cap growth fund remains on the watch list after trailing its benchmark over the three- and five-year periods. The committee discussed the fund's recent portfolio manager change and agreed to keep it on watch for two additional quarters, consistent with the Investment Policy Statement. The advisor will present replacement candidates at the next meeting.

Record retention

ERISA requires records supporting the plan's required filings to be kept for at least six years after the filing date. Many sponsors keep their fiduciary file, including minutes, charters, and reports, for much longer.

Monitoring delegated fiduciaries

If your plan uses a 3(38) investment manager or a 3(16) administrator, the committee is still responsible for monitoring them. Minutes should reflect that review.

Small plans

In a small business where the owner makes every decision, a formal committee may feel unnecessary. The underlying principle still applies. Hold at least one documented plan review each year, keep the materials, and write down what was decided and why.

Want help setting up a committee or a review process for your plan? Brian Williams, CPFA®, of Northshire Consulting LLC | Registered Investment Advisory Firm meets with business owners to review plan governance. Call 203-401-6062, email bwilliams@northshireconsulting.com, or visit northshireconsulting.com to schedule a plan review.

Frequently asked questions

Is a formal fiduciary committee required?

No. What matters is that fiduciary responsibilities are clearly assigned and that decisions follow a documented process. A committee is a common way to do both.

Can committee members also be plan participants?

Yes. Committee members are often participants, but when acting for the plan they must act solely in the interest of all participants and beneficiaries.

Who should take the minutes?

Usually a designated committee secretary, sometimes with help from the plan's advisor. The committee should review and approve them.

This material is for educational purposes only and is not individualized investment, tax, or legal advice. Advisory services are offered through Northshire Consulting LLC | Registered Investment Advisory Firm.