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Fiduciary Trap to Avoid #4: Having an ineffective employee benefit plan investment committee

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Over the next weeks we will continue to address a series of seven “fiduciary traps” that can have a negative influence on the company’s employee benefit plan. We have already touched on several traps to avoid.  And now we present Trap #4 regarding how crucial an effective Employee Benefit Plan investment committee, is to the success of any Plan.

Simply put, the investment committee holds a valuable role for a company’s employee benefit plan. This is based on the fact that Plan sponsors have an obligation to create an investment committee to appropriately manage the plan’s investment process.  In fact, the election of an investment committee that is designed to manage the plan for the sole purpose of benefitting plan participants and their beneficiaries is one of the best practices embraced by Plan sponsors.

Because the investment committee has such a strong impact on the employee benefit plan, it's critical for the committee to be effective. That’s primarily because the committee not only establishes and implements a formal and thoughtful process for the Plan’s investment strategy and policy statement, but  it also exercises regular oversight of the professional advisors to the Plan (including investment consultants, attorneys and accountants among others), regularly monitoring the Plan’s investments and documenting the decisions that are made.  It can be seen from this comprehensive list of essential tasks that if the committee doesn’t do its job appropriately, the Plan participants can be impacted.

As such, the Plan sponsors must be careful to select investment committee members who will be sure to fulfill their important responsibilities.  And also who will vote on investment issues with good judgement, and consistently demonstrate that their decisions are well-founded.  Additionally will prove that the investment strategy they’ve crafted is being followed.  Without this commitment and the presence of a high level of professionalism, the Plan will be weakened.