Comply with ERISA 404(c)
Top 10 ways to reduce your fiduciary liability #4
This ERISA section applies to individual accounts, allowing participants and beneficiaries to exercise control of their own accounts.
Although it is not required, compliance with ERISA Sections 404(a) and (c)—a good practice—begins with the following basic principles that allow for:
Choosing from a broad range of investment options that consist of at least three diversified investment options, each of which has different risk and return characteristics, such as equities, fixed income, risk categories and the like
- Changing investment elections with a frequency that is appropriate given the market volatility applicable to the different investment options (at least once every three months)
- Diversifying investments within and among the investment alternatives
- Obtaining sufficient information to make informed investment decisions with respect to the different investment options available under the plan.
How many plan sponsors will eagerly raise their hand when asked if they can attest that sufficient participant education has been conducted resulting in their participants making informed investment decisions on a regular basis? Are you at least providing this education to plan participants?
There is no official seal of 404(c) approval that can be awarded to a plan. The only way you can be certain that you are in compliance is having a judge tell you so. Unfortunately 404(c) has not removed all the gray areas of fiduciary regulations or produced uniformity in case law as was hoped. As a result, the prudent fiduciary will strive to comply with 404(a) and (c) using best practices rather than simply hoping to comply. Section 404(c) provides protections to plan and plan fiduciaries for participant investment decisions.