A guide to defined contribution fiduciary committee governance

22 May 2025
Best practices for assembling fiduciary committees that are responsible for the management of retirement plans.
Managing retirement plans1 effectively is a vital part of enabling participants to have the opportunity to secure their financial futures. The Employee Retirement Income Security Act (ERISA) sets fiduciary standards that require plan sponsors to act in the best interests of plan participants and beneficiaries when exercising discretion in the management and operation of ERISA-covered plans. This paper provides insights regarding best practices for assembling fiduciary committees that are responsible for the management of retirement plans, offering practical recommendations to help committee members meet their fiduciary responsibilities. Mercer’s point of view is that effective retirement plan governance – with attention to both structure and process – is necessary to manage the risks inherent in offering qualified retirement plans in today’s environment.
Understanding the Fiduciary Duties Outlined by ERISA
Acting in the best interest of plan participants is among some of the key fiduciary responsibilities imposed on those managing retirement plans. Under ERISA, and within the context of defined contribution plans, committees must ensure that investment options are prudently selected, plan administration and investment management fees are reasonable, and that participants receive all required information. If committees do not meet these standards, they can risk legal and financial consequences, including personal liability for acts or omissions that constitute breaches of fiduciary duty. Periodic governance training is advisable to ensure committee members fully understand their responsibilities.
In this paper, we are typically referring to defined contribution plans, however, the broad guidance also applies to ERISA-covered qualified pension and retiree medical plans. While oversight of non-qualified plans is generally not subject to ERISA’s fiduciary standards, oftentimes, plan sponsors use the same committees and apply the same processes when managing them.
The four basic fiduciary duties under ERISA are:
Exclusive benefit
Prudent person
Diversify investments
Follow plan document
Committee Structure and Governance
Creating an effective governance structure can begin with the formation of a committee to oversee the retirement plan. When we discuss committees, we generally refer to those that primarily focused on plan investments, though there are committees that also have additional responsibilities.
Areas to consider when forming a committee include, but are not limited to, securing appropriate delegations from the Board or higher level of authority, ensuring alignment with the organization’s governance practices, documenting its formation, compensation2, and responsibilities, and establishing protocols regarding its membership and meeting cadence. The formation and successful operation of a committee is essential for properly satisfying fiduciary responsibilities.
- Size: A committee should generally consist of an odd number of members to prevent votes from resulting in a tie and to allow necessary stakeholders and departments to be represented. We recommend committees consist of five or seven members. Smaller committees of 3-5 members may be appropriate if the organization forms separate committees for administrative and non-administrative matters. The committee should have a minimum of three members.
- Composition: Committee membership should optimally contain representation from corporate departments that are typically involved with establishing and maintaining retirement plan benefits (e.g., finance and human resources). The goal should be to have individuals with varying expertise across investments/finance and benefits, while also having sufficient experience to make decisions on behalf of the entire employee population eligible for the plan. Legal expertise may also be helpful; however, this area of expertise can be obtained externally (i.e., through ERISA counsel) when needed. When a member of the legal department serves as a committee member engaged in fiduciary activities, they are subject to the fiduciary standards of ERISA. Communications made in that capacity may no longer be subject to attorney-client privilege. If legal counsel regularly attends committee meetings, or is invited to attend a specific meeting, they should do so with a distinct role.3
One aspect of determining committee composition that is often overlooked is the general availability of potential members. The importance of attending meetings is discussed later, but members of the committee should be able to meet their obligations without delaying decision-making. For some committees, considering term limits may help to manage not only capacity and resourcing, but also to provide fresh perspectives.
- Defined Roles: To streamline decision-making and accountability, clearly outline the purview of the committee, as well as roles and responsibilities, including the selection and role of the committee chair. The method of appointment, for both members and the chair, should be outlined in the charter or bylaws (e.g., Board appointed, by job title, selected by committee vote, etc.). Given that the documentation of processes is an important component of carrying out fiduciary responsibilities, it can also help to have a committee member or regular attendee at meetings assigned to take meeting minutes and perform more ministerial functions.
- Regular Meetings: Meetings should be scheduled at a regular cadence. We generally recommend quarterly meetings to address investment items. However, depending on how responsibilities for managing the retirement plan have been divided, semi-annual meetings may be appropriate to address administrative or other such items. A quorum is needed for any vote that must be taken, which makes committee member attendance vital. In addition to casting votes, member attendance is crucial for building rapport and trust within the committee, which is in turn conducive to effective decision-making. Missing meetings can disrupt continuity and may lead to slow decision-making.
- Hire Independent Experts as Needed: ERISA demands a “prudent expert” standard in decision-making, not a “best effort”.4 Unless the committee is already comprised of experts, it must elevate the quality of its decision-making. This could be accomplished by engaging with third-party experts, including ERISA counsel and investment advisers, who can provide unbiased advice and oversight, along with pointed expertise. The committee remains responsible for selecting which experts to engage with and the ongoing monitoring of those experts.
- Conduct Regular Training: Committee members should remain informed about their responsibilities, the latest regulations, and ongoing trends. Ongoing training should be conducted and include a focus on differentiating between settlor and fiduciary functions.
Documentation and Process
Establishing, following, and documenting a well-defined process is vital for demonstrating compliance with fiduciary duties. Key components include, but are not limited to:
- Establish and Follow a Committee Charter: A clear charter defines a committee’s purpose, authority, and operational procedures.
- Maintain Meeting Minutes: Keep succinct but comprehensive records of topics discussed and decisions made during committee meetings and retain all the supporting documentation.
- Establish and Follow an Investment Policy Statement (IPS): This formal document outlines the investment strategy, objectives, and guidelines for monitoring the plan investments.
- Consider Fiduciary Liability Insurance: This insurance protects fiduciaries against claims related to alleged breaches of duty. (Fiduciary insurance is different from a Fidelity Bond, which is required and protects the plan against losses due to fraud or dishonesty.)
Diversity of Opinions in Committees
Avoiding groupthink within committees can be crucial for fostering innovative thinking and effective decision-making. Research shows that diverse teams are more likely to challenge assumptions and consider a wider range of perspectives, potentially capturing more of the plan participants’ viewpoints, which may lead to better outcomes.5
To balance perspectives, fiduciary committees can adopt several strategies:
- Encourage Open Dialogue: Foster an environment where all members are encouraged to share their thoughts and challenge each other constructively.
- Implement Structured Decision-Making Processes: Use formal processes for decision-making that require the consideration of multiple viewpoints and thorough analysis of options. A blind voting process may be appropriate for major decisions.
- Invite External Perspectives: Regularly bring in external experts to provide independent insights or education and challenge the committee's thinking.
Conclusion
Enhancing governance in retirement plans requires a comprehensive understanding of fiduciary responsibilities and effective committee structures. By adopting best practices and prioritizing education, organizations can better serve their plan participants, mitigate risks, and fulfill their fiduciary duties.
1In this paper, we are typically referring to defined contribution plans, however, the broad guidance also applies to ERISA-covered qualified pension and retiree medical plans. While oversight of non-qualified plans is generally not subject to ERISA’s fiduciary standards, oftentimes, plan sponsors use the same committees and apply the same processes when managing them.
2Formal documentation may clarify that members of the committee are not receiving compensation for performing their committee / fiduciary duties. It is uncommon for employees of the entity sponsoring the plan and acting in a fiduciary capacity to receive compensation for their role on the committee, however, it is not unheard of, especially if a committee includes external individuals.
3Seyfarth Shaw LLP. (2009, December 17). Should general counsel be an ERISA benefit plan committee member? Seyfarth Insight. https://www.seyfarth.com/news-insights/seyfarth-insight-should-general-counsel-be-an-erisa-benefit-plan-committee-member.html
4ERISA § 404(a)(1)(B)
5Vanguard: " Unsticking the status quo: The role of diversity in investment committee effectiveness” May 2014