Sponsors of 401(k) plans are not required to form an investment committee under the Employee Retirement Income Security Act, which explains why so many plans—even large ones—operate without one.

That’s a dangerous proposition, according to Jason Roberts, an ERISA attorney and CEO of the Pension Resource Institute.

Roberts travels the country advising plan sponsors and plan advisors on how to not run afoul of their fiduciary obligations under ERISA.

He said plan advisors all too often presume investment committees are only necessary for large or mega-sized plans.

“That couldn’t be further from the truth,” Roberts said. “It’s often the smallest companies that need the support and protection of a well-run investment committee the most. Sponsors of those plans are running their businesses and wearing multiple hats—often at the expense of their fiduciary duties as plan sponsors.”

Roberts advises all of his clients to form what he terms a retirement plan committee. But it’s not enough simply to have a committee, he said. Once formed, those committees have to know how to function.

Too often, committees limit their focus to a periodic review of the performance of investments in a plan.

That is one of a committee’s functions, and an important one, Roberts explained, but if the company limits the committee’s oversight to benchmarking investment performance, it is unintentionally ignoring other responsibilities that are key to a sponsor’s duty to prudently operate a 401(k) plan.

“It’s vital that committees allocate time across all aspects of plan governance,” he said.

Roberts divides a sponsor’s fiduciary obligations into three buckets: the selection and monitoring of investments, the selection and monitoring of service providers, and the administration and reporting requirements under ERISA.

“If all committees are talking about is the investment aspect of their plan, then they are ignoring the two biggest buckets for fiduciary liability,” he said.

In fact, Roberts said the question of a plan’s investment performance exposes sponsors to relatively less fiduciary risk than other areas of plan governance, such as the question of the fees on a plan and how those costs are paid for.

In forming a committee that focuses on the entirety of a plan’s operations, sponsors have the benefit of drawing on key employees’ areas of expertise for guidance.

Roberts counsels advisors and sponsors to apply a company’s existing talent pool to specific committee functions.

CFOs or company controllers are often a natural choice for a position on committees, given their financial acumen. Accountants versed in the nuances of tax filings can apply that skill set to the duties of documenting the plan. And managers with procurement responsibilities can compare and vet proposals from record keepers.

Anyone who has discretion over investing plan assets, giving investment advice or controlling the administration and management of a plan is acting as a fiduciary, Roberts said.

But not all committee members are necessarily plan fiduciaries.

Roberts said sponsors can insulate their employees from fiduciary responsibility by designating employees as non-voting members. “Information gathering, analyzing data and presenting choices to voting committee members are not fiduciary actions,” he said.

When a properly functioning committee is in place, it only makes sense to also have an investment policy statement that shows a plan’s fiduciaries are acting under an informed process, Roberts said. The statement doesn’t have to be a legally binding document, but it should show fiduciaries are engaged in an objective decision-making process.

Roberts advises clients to articulate their investment strategy in an IPS. For example, if the plan only uses passively managed funds, that should be stated.

He also said small and midsized sponsors should document share class information, because that informs how record keepers and advisors are compensated. They should also explain how a plan’s expenses are paid for.

If the entire point of the investment committee is to aid sponsors in meeting their fiduciary obligations, the purpose of an investment policy statement is to prove that, Roberts said.

“It’s hard to imagine how you demonstrate prudence without having something in writing,” he added.