The Plan Committee (Part Four): Appointing and Removing Committee Members 

Appointing and removing committee members. This is an aspect of committees where there is generally a woeful lack of understanding of the commitment that is being made. What I have seen so many times is the plan version of the military’s Selective Service System: “Yes, son, you’ve been drafted and you report to duty on October 1.” Newly appointed committee members often show up at their first committee meeting as raw recruits with no information about the plan or their legal obligations and liabilities as ERISA fiduciaries. 

What I think should happen is a lot like an employer hiring an employee and an employee deciding on whether to accept a job offer. Each should be mutually interested in making sure they are making the right decision based on an objective assessment of the other. That sounds like the prudent exercise of fiduciary responsibility to me.
 
 

Making a “job offer” – what plan sponsors should be thinking about. 

  • Has the candidate been convicted of an offense that precludes them from serving? That’s right. ERISA says that if you have been convicted of certain crimes you’ can’t serve as a plan fiduciary. I’m know it can be awkward to be checking on that nice, competent person down the hall from you but it will be much more than awkward if you don’t check and find out later that person has a conviction for bank robbery (or worse, embezzlement from a pension plan). Some plan sponsors authorize criminal background checks as a best practice precaution.
  • Is the candidate able and willing to exercise independent judgment? Remember this is a position that requires the candidate to do their duty exclusively on behalf of plan participants and beneficiaries. At some point plan and plan sponsor interests may diverge to a point where the candidate will have to take a position that is adverse to the interests of the sponsor. Is it your judgment that the candidate will be able to do that when that time comes?
  • Does the candidate have the right background, experience and commitment for the job? Federal law does not require committee members to have specific expertise or experience with benefit plans. But the law does hold committee member actions to the standard of someone who is familiar with plan matters. This is a high standard and essentially means the candidate must be committed to quickly learning the job. In truth candidates coming from business background have a demonstrated ability to learn and will generally have the right skill set for committee work.
  • If the candidate is appointed, will they have the time and capacity to commit to their committee responsibilities? A candidate who already has a full plate of job responsibilities and would not have the time to attend committee meetings and engage in other activities of the committee is not an ideal candidate.
  • Does the candidate have any conflicts of interest that would prevent them from acting in the best interests of the plan? For example, a candidate who is the spouse of the broker of record for a 401(k) is generally not someone you would want on your committee.

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Plan sponsor commitment to candidate education is really important. I mentioned earlier that candidates must be able to commit to educating themselves. Correspondingly the plan sponsor must commit to providing that education or training. Even the kid across the counter from you at McDonalds (bad example from a nutritional point of view I know) gets some training. Shouldn’t a newbie fiduciary get some too? I think so, and it should consist of general information about the applicable laws and some plan specific knowledge. Some basic stuff about fiduciary responsibility, ERISA requirements, and tax code qualification requirements should be in the course syllabus. I would follow that with information about the key provisions of the plan such as eligibility and participation requirements, contributions, distributions, and plan investments. This education will not be complete unless it also includes identification of key plan service providers and how and how much they get paid.

Accepting a “job offer” – what candidates should be thinking about.  Candidates for committee positions really ought to be more nervous about accepting them than they typically are. Much like the Selective Service draftee mentioned earlier, they show up for “work” without having done a shred of due diligence on what it means personally for them in terms of the responsibility itself and personal liability. I’d like to suggest a better approach for the budding committee member candidate.   

Before you leap:

  • Ask yourself “do you really want this?” Can you commit sufficient time, attention, and focus to plan matters? Do you have any conflicts of interest that will prevent you from acting for the benefit of the plan?
  • Do you understand what you are getting into? Have you reviewed plan documents, the committee charter (if there is one) and committee minutes? Do you know exactly what your responsibilities are? Have significant plan problems been identified to you and discussed?
  • Figure out whether you are protected from personal liability. Will you be indemnified for your actions as a plan fiduciary? What do the plan provisions say? Does the plan sponsor maintain fiduciary liability insurance? Have you consulted with an insurance expert or with counsel about the nature of your liabilities and your protection from it?
  • Has the plan sponsor committed to provide you with fiduciary training?

 

Formalizing Appointments, Removals & Resignations

Documentation is of course the hallmark of a strong fiduciary process. This is no less true when it comes to the entry and exit of committee members.

  • A board of directors in the case of a corporation will typically initiate an appointment or removal of a committee member through a resolution of the board. The plan sponsor will typically send a letter to the individual advising them of the board’s action.
  • The appointee should countersign the letter accepting the appointment and acknowledging the responsibilities they assume under the plan.
  • A resignation should be effected by a letter from the resigning individual advising the company of the effective date of the resignation.
  • In the event a committee member has left the employer, a memo reflecting a vote of the committee to remove him/her as a fiduciary can be placed into the fiduciary records along with the action being recorded in the minutes.

Get your copy of the FPG Appointment, Removal & Resignation Checklist here!

For a comprehensive discussion of ERISA fiduciary responsibilities and valuable day-to-day resources, there is the Fiduciary Responsibility eSource. Learn more at ERISApedia.com.

 

 

Chuck Humphrey is principal of Law Offices of Charles G. Humphrey, a firm concentrating its practice in the field of employee benefits and fiduciary law. He is the author of the Fiduciary Responsibility eSource available at ERISApedia.com.