By Jeff Chang
Many investment advisors for public agency 457(b) plans believe that their public agency clients must have a retirement plan committee in order for the plan to have a proper plan administrator or fiduciary structure. As discussed below, we think that there are a lot of good reasons: (a) not to establish a formal committee as the plan administrator; or (b) to limit the scope of a committee’s responsibilities.
- In a recent blog on the duties and responsibilities of plan administrators, we highlighted the fact that most plan administration deals with the day-to-day communications and dealings with participants, beneficiaries and recordkeepers. The vast majority of plan administration activities consist of these things, not the oversight or selection of plan investments.
- The day-to-day administration of a retirement plan cannot be handled well by a committee of individuals dispersed throughout the organization where it might take days or weeks to schedule a meeting or call. Various matters such as the approval of unforeseeable emergency distributions, loans including CARES Act loans, domestic relations orders, or death benefit payments often cannot and should not take weeks to approve. These types of matters are best handled by staff in human resource positions who are intimately familiar with the terms of the plan and the applicable “request” processes. They are not well-suited to resolution by union or bargaining representatives, or large committees, that may be unfamiliar with such plan details.
- Many, if not most, employees asked to serve on a plan administrative committee think that they will be meeting on a quarterly basis to receive reports and recommendations concerning the status of plan investments. While a committee certainly can be formed for this purpose, we think it is important to clarify the expected scope and duties of any such committee. Too often, the day-to-day responsibilities of plan administration are conflated with the more periodic investment oversight activities. If any agency wants to involve more employees, or employee groups, in plan oversight, we recommend that the committee be structured as an advisory group and only responsible for dealing with plan investment issues. Utilization of a “3(38) adviser” would make a lot of sense in this setting.
- Another important reason for taking care in the formation of any plan-related committee is because of the potential application of the Brown Act’s open meeting rules. We strongly believe that for a wide variety of reasons, a Brown Act committee is not the ideal vehicle for handling day-to-day plan administration and, in many cases, may not be a good vehicle for overseeing plan investments. There are ways to create and structure a plan “investment committee” that is not subject to Brown Act requirements, but this may take a bit of planning.
- Given the differences between day-to-day administration and investment oversight responsibilities, we are seeing a number of public agencies adopting “bifurcated” or split plan administration structures: with specific individuals in HR or finance responsible for day-to-day administration and an investment committee responsible for more periodic oversight of plan investments.
Regardless of which structure your agency adopts, it is critical for everyone to understand the nature and scope of their duties and responsibilities and to be in a position to fulfill their duties in a prudent and timely manner.
Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at firstname.lastname@example.org or (916) 329-3685.