For sponsors of 401(k) plans, and more specifically,the investment committees that oversee retirement plans, accountingfor demographic trends can lead to better fiduciary stewardship.(Photo: Shutterstock)

The modern workforce, and the workforce of tomorrow, is and willbe more diverse than ever, according to research fromDeloitte.

Millennials now represent the largest generational share of theworkforce. Still, the workforce is aging. Consider this: by 2024,30 percent of the 65 to 74 age group are expected to still beworking, compared to just 17 percent in 1994.

Women's share of the workforce is growing too, expected to be47.2 percent in 2024, according to Deloitte. And less than 60percent of the workforce will describe itself as "whitenon-Hispanic," compared to three-quarters of the workforce thatfell into that category in 1994.

For sponsors of 401(k) plans, and more specifically, theinvestment committees that oversee retirement plans, accounting for demographictrends can lead to better fiduciary stewardship, and ultimately,better retirement outcomes for all participants in a plan, thinksBrendan McCarthy, national sales director for Nuveen's DCIObusiness.

"The more different groups can be represented on a committee,the more effective the decision making can be," said McCarthy.

What exactly constitutes diversity is, of course, anincreasingly diverse definition. Beyond age and genderdemographics, individual businesses can have disparate race andsocio-economic makeups.

And the roster of investment committees can't be expected to beexpanded to represent all demographic silos in a given retirementplan.

The majority of investment committees—64 percent—are comprisedof four to seven members, according to research from Callan.

An odd number is better than an even number, so as to avoidsplit votes. Five is a sound number, but McCarthy says a committeecan be expanded to seven seats without compromising efficiency. "Itstarts to get unruly after nine," he said.

Three seats should be occupied by traditional choices—a memberfrom the senior leadership of a business' financial arm, one fromhuman resources, and one from legal.

From there, a plan sponsor would be wise to consider thespecific demographics of its workforce, says McCarthy.

"The idea is to look at your workforce to make sure it isadequately represented," he said. "Every company is different, butoften investment committees lack a younger demographic that mightbe represented in the workforce."

Including representation of rank-and-file workers can addinsight to how a plan is being used by all wage earners.

The 401(k) market is naturally diverse by size. Fortune 100 and500 companies, the primary targets of the plaintiffs bar in 401(k)fiduciary claims, are leading the way in diversifying investmentcommittees to be more representative of their workforces.

Large plan consultants have helped direct sponsor clients to thevalue of diversifying committees, says McCarthy.

But often mid-sized and smaller plans have yet to get thememo.

"Some of those plans don't even have an investment committee,"he said.

In his role overseeing DCIO sales for Nuveen, McCarthy's pointof communication is with plan advisors, whom he says play acritical role educating sponsors on their roles as fiduciariesunder the Employee Retirement Income Security Act.

Advising on the potential positive outcomes of diversifyinginvestment committees creates an opportunity for advisors to relaytheir value proposition to existing clients and prospects.

"We help advisors with those conversations," McCarthy said ofhis role. "If an advisor can walk into a client or a prospect andinitiate a fiduciary conversation, that can be a hugedifferentiator. In helping improve the make up of an investmentcommittee, an advisor can potentially improve outcomes of theretirement plan for participants. And the more an advisor canincrease their value proposition."

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