Best Practices: How to ‘Morph’ and Guide a Plan Committee

How do you guide a plan committee – keep it focused and productive, while minimizing the forces that can undermine it? Three industry execs shared best and worst practices at a March 20 NAPA 401(k) Summit session.

Stig Nybo, head of development at Capital Preferences; Matt Gulseth, a partner at Channel Financial; and Karl Hansen, CEO/President at The Vita Companies, shared insights drawn from a combined 75 years of experience, breaking it all down into four categories: what they learned from their mistakes, selecting the ideal committee, creating an effective framework, and maintaining the committee’s focus.

Lessons Learned the Hard Way

The trio shared some things to avoid when guiding a plan committee:

  • Failing to start with a philosophy for the plan that guides the committee.
  • Letting the committee cave in to a dominant member.
  • Letting the committee fall victim to groupthink.
  • Fighting a battle with a member in front of the whole committee.
  • Letting the committee fall victim to short-term thinking. The purpose of most committees, after all, is to do something. But for a plan committee, especially when it comes to investment changes, doing nothing is often best.

Selecting the Ideal Committee

As Nybo noted, since most plan committees are inherited by the advisor, not created from scratch, often this might be more appropriately viewed as “morphing an existing committee.”

The ideal size, suggested Gulseth, is three members, with a maximum of five. He believes it’s important for the advisor to accept them for who they are and meet them at that level, not expect them to be experts.

Who should be on the committee? Not the CEO, unless the plan is a small one, said Larsen. It’s the advisor’s job to keep the CEO in the loop via meeting minutes and summary reports, he believes. But the committee should include a higher-level decision-maker, preferably the VP of HR, he said.

Creating an Efficient Framework

Larsen values a focus on process and documentation. He shared the organization of binders that he prepares for his clients, which include tabs for an executive summary, plan operation review, payroll contribution audit, discrimination testing, forfeiture account, loans, uncashed checks, fee disclosure, defined contribution report, IPS, fund performance review, and regulatory update.

His reports to the committee include date, time, location and attendance at committee meetings, statement of purpose, plan operations, compliance review, fee disclosure/confirmation of reasonableness, regulatory update, and fund performance review/needed actions.

Maintaining Focus

Gulseth said that he works with plan committees “to play defense,” meaning focusing on plan design first and foremost, and investment issues last.

Larsen believes in helping the plan committee focus on outcomes and retirement readiness – what he calls “end stories,” or projections of retirement income for individual participants based on their current deferrals and employer matching contributions. This leads committee members “to take on a higher level of responsibility,” he believes.

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