A new survey of large plan sponsors highlights the challenges of – and possible solutions for – structuring and running plan committees.
Investment committees reporting that timeliness of making decisions was a challenge also reported a higher-than-average member tenure (9.1 years, compared to 5.9 years for the average investment committee) and poor participation correlated to a shorter tenure (2.8 years). And for each committee type, poor participation and clarity around roles corresponded with a higher-than-average number of committee members.
In “It Takes a Committee,” a new report from the Callan Institute, “strained internal resources” was a top challenge for all committee types, while so-called administrative committees struggled equally with strained internal resources and timeliness of making decisions. In contrast, clarity around roles and responsibilities was a bigger challenge for single committees than other committee types. Callan fielded the “DC Plan Governance Survey” in May 2017 among 106 large plan sponsors, 57% of which were corporations, 22% public agencies and 22% tax-exempt organizations.
When examining these challenges in the context of the number of in-person meetings, the survey’s authors noted that investment committees which cited timeliness of decision making or strained internal resources as one of their top challenges had a large number of meetings. Conversely, administrative committees which reported that short tenure was one of their top challenges also reported a significantly higher number of meetings, which the authors note may signify that new members require more meetings.
Frequent ‘See’?
The most common number of committee meetings was four per year. Three meetings came in second for investment committees, and one or two meetings for administrative committees. Five or six meetings – or more than 10 meetings a year – were most common for single committees. The report’s authors note that staff members are often overwhelmed by the volume of information they must collect, compile and disseminate for committee meetings, and that if more than four meetings are the norm for a committee, the committee may wish to review the composition, agenda and priorities of the committee to identify efficiencies.
Plans with more participants were likelier to have separate committees (66% of plans with more than 10,000 participants compared to 29% of plans with 10,000 or fewer). Likewise, 57% of corporate plan sponsors had separate committees, compared to just 35% of tax-exempt organizations and 36% of public entities.
What are the ‘Odds’?
Callan’s Governance Survey found that single and administrative committees were more likely to have an odd number of members than investment committees, while investment and administrative committees with an even number of committee members were more likely to report challenges with strained internal resources. Investment committees with an even number of members were also more likely to report poor participation, while administrative committees with an even number reported issues with the timeliness of making decisions. Single committees with an even number of members were more likely to experience challenges with clarity around roles and responsibilities.
Who’s ‘In’
The Governance Survey found that although the benefits team was generally represented on corporate investment committees, it was somewhat less common for investment and finance staff to participate on corporate administrative committees. Single committees were the most likely to include members of the executive team and legal counsel. The report’s authors note that it may be desirable to include HRIS staff, not necessarily as voting members, when decisions made by a committee may affect payroll and HR technology programming or other benefits within the organization. Employee representatives may be included on the committee to provide insight into the participant population (e.g., people representing certain demographics), or union groups may be required as part of bargaining agreements.
Term ‘Limits’
The survey found that while the majority of committees did not have pre-set membership terms, single committees were the most likely to have a pre-set term (25%). At the same time, a number of single committees with pre-set terms indicated that their average tenure was 10 years or more. Overall, single committees had the highest average tenure (6.6 years, compared with 5.9 years for investment committees and 5.4 years for administrative committees), as well as the greatest percentage of committee members who had served for at least 5 years (45% versus 26% or 28%, respectively). The authors note that this may indicate that committee members may have their terms extended or may be reselected as committee members after their terms expire.
Not surprisingly, investment advisers were the most common non-committee advisers to regularly attend meetings for both investment committees and single committees, though for administrative committees, outside counsel was the most common non-committee adviser regularly attending. Fewer than one in five respondents said that vendor relationship managers attended administrative committee meetings.
According to the survey, annual fiduciary training was most common for single committees (44%); "periodically" was most common for investment and administrative committees (43% and 32%, respectively). At the same time, the authors acknowledge that single committees were the most likely to report no fiduciary training had been conducted (15%). In general, respondents noted that their committee members were most likely to learn about best practices in governance or stay abreast of trends in plan management from their consultant, followed by staff and legal counsel. When asked what could improve plan governance, respondents most commonly noted better education, followed by fixing structural issues of the committee.
Conclusion
In sum, the survey found that:
- Plans with higher participant counts were more likely to have separate committees — administrative and investment — than smaller plans, which were more likely to have a single committee.
- Across committee types, poor participation and clarity around roles corresponded with a higher-than-average number of committee members.
- Investment and administrative committees with an even number of committee members were more likely to report challenges with strained internal resources.
- While most committees reported annual or at least periodic fiduciary training, nearly one in seven respondents from single committees noted no fiduciary training had been done.
- The party responsible for setting the agenda influenced the committee’s priorities (i.e., staff vs. committee head).
- In general, respondents viewed their committees as highly effective.
