401(k) Comittee

[Guest Benmark]

Can anyone give me their opinions as to the people who should serve on the 401(k) Committee? We are a 2000 employee company with $45 million in our plan. We also hold employer stock as an investment option.

Currently, our CFO, General Counsel and HR Director serve as the Committee members. Our General Counsel has been advised that he should not continue as a Committee member due to possible conflict of interests with our employer stock.

Would like any advice or suggestions as to the preferred composition of this Committee or whether one should be maintained at all.

Thanks

[MoJo]

Benmark - you've asked the million dollar question - and one I've asked many times of participants in workshops I've conducted on fiduciary responsibility. The answer, IMHO, is "it depends." Selecting the members of a fiduciary committee (I'm assumming this committee will have fiduciary functions) is a fiduciary function itself. I always advise that you 1) examine what fiduciary functions need to be performed; 2) Identify who is will be performing them (i.e. is it the committee, the plan sponsor, the trustee, or someone else); 3) Identify the skills the members of the committee need to have in order to fulfill the fiduciary functions assigned to them; and 4) Find the people necessary to fulfill those functions. A fifth step would be to continually repeat these steps as situations change, and make sure all fiduciary functions are identified, and performed by those qualified to do so. In fact, in many cases, the committee itself is charged with monitoring all of this, and may have to reform itself in order to accomplish what needs to be done. I am not a big fan of putting people on the committee based on "title" or position (i.e. The president, CFO, GC, head of HR, etc.) because a) they actually may not have the requisite skills to perform the fiduciary functions (i.e. can they truly be objective in identifying and implementing the "best funds for the participants" (which may be different than just the "best funds" at the time - or the CFO's favorite fund)?); and b) there may be conflicts of interest that arise from time to time between functions as a Executive witht he plan sponsor and their fiduciary duties (ask Ken Lay of Enron about that one - he's may be going to trial in several civil suits over precisely that issue).

I am also not a big fan of putting "rank and file" employees on the committee. Far too often that is perceived as being a way to get employee "buy-in" on committee decisions. Employee buy-in may be important from a participation perspective, and from an employee relations perspective, but it is wholly unimportant from a true "fiduciary decision making" perspective. If such an employee has the requisite skills, by all means, put them on the committee. If you are looking for buy-in only, form an Employee Ad-hoc Advisory Committee as an adjunct (non-fiduciary) body to bring employee concerns to the fiduciary committee, and "sell" the decisions back to employees, once made.

[Guest danc4639]

I think you have appropriate Committee members. How did the 401(k) Committee come to exist? What authority does the Committee hold? How is the Committee granted its authority? Does the Committee follow & document a fiduciary process?

These are basic governance questions and particularly since your plan holds employer stock, your plan's ERISA Counsel should assist with a formal review of governance & detailed guidance regarding the composition and duties of the Committee. By the way, I am not an attorney.

Should you maintain a 401(k) Committee? I believe a sponsor, by virtue of plan sponsorship, has a fiduciary obligation as generally described under ERISA. Fiduciary process (whatever you determine that to be) necessarily involves analysis & decision-making. So whether you formally have a 401(k) Committee or not, defacto, because your company sponsors a 401(k) Plan you have individuals involved in analysis & decisions.

In my opinion, you are better off recognizing your fiduciary role and managing it explicitly. The conflict with the employer stock needs to be addressed by counsel.