Tuesday, December 22, 2015

Best Practices for Setting Up An Investment Committee for Corporate Retirement Plans

In our 2014 Retirement Survey Report, about 79% of survey participants said they have an investment committee. Given a complex environment of regulatory scrutiny and fiduciary liability exposure, a committee specifically charged with investment oversight is a sound risk management strategy for plans and organizations of all types and sizes.

Although they will differ from one organization to the next, best practices suggest an investment committee’s responsibilities and duties include:
  • developing an investment policy statement;
  • establishing a formal process to manage the plan’s investment strategy;
  • determining and implementing investment decisions;
  • establishing procedures for selecting and monitoring investment options;
  • selecting and removing fund managers and evaluating their performance; and
  • reviewing investment management fees.
As these duties suggest, it is also a best practice to ensure that an investment committee is appropriately empowered to make and carry out relevant investment decisions. A committee that is purely advisory in nature may result in unnecessary delays in making and implementing critical retirement plan decisions and policy. An “advice only” committee may also discourage qualified prospective members who may only wish to serve on a committee with real authority.

Broad representation is another best practice to help ensure effective investment committee activity. More than 37% of survey participants said their investment committee was comprised of a combination of senior staff and members of their board of directors. Roughly 13% of respondents said their committee consisted of board members exclusively, while an additional 29% said their committee was comprised exclusively of senior staff. A remaining 21% answered “other” when asked about the composition of their investment committee.

One compelling reason to compile a diverse committee is the inherent risks of limited thinking and outlook. An unduly narrow perspective can influence a committee’s thinking. Best practices suggest that effective committees should be comprised of members who have a good understanding of financial and/or investment matters, and incorporate people with diverse backgrounds, including financial, legal, human resources, and other disciplines. Not only does this approach allow for input from a broad array of perspectives, it can also mitigate the risk of a committee being dominated by a single person or point of view.

If you have any questions about establishing an investment committee, or would like to speak with an advisor, please get in touch by calling (800) 388-1963 or via e-mail at hbs@hanys.org.