COLLECTED WISDOM™ on ERISA §404(c)

ERISA §404(c) provides a plan sponsor and other fiduciaries with liability protections on participant-directed retirement plans, like a 401k, if the plan satisfies the conditions in the 404(c) regulations.

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Other topical areas you may find of interest that are not fully covered here include Investment Committees and Fiduciary Responsibility and Liability Issues.

ERISA Section 404(c) Protection: A Refresher for Fiduciaries

Section 404(c) of ERISA relieves fiduciaries from liability for participants' and beneficiaries' investment decisions in participant-directed individual account plans (like 401ks) if four requirements are met. They are reviewed in this article.

Source: Verrill-law.com, October 2022

Investment Education Is All About a Process

There have been so many misconceptions that plan sponsors and advisors have had concerning ERISA 404(c) plans. They have this belief that if they just give a mutual fund lineup and some Morningstar profiles to plan participants that they are exempt from liability. ERISA 404(c) protection is about following a process and Morningstar profiles are just not enough education to give to plan participants. You have to provide enough information for participants to make informed investment decisions.

Source: Jdsupra.com, January 2020

The Shocking Truth About Participant Directed 401k Plans

ERISA 404(c) participant-directed plans can help a plan sponsor limit their liability for losses sustained by the participant. On paper, it's too good to be true. The problem is that it is on paper and there may be some shocking truths that a plan sponsor is unaware of about these participant directed 401k plans.

Source: Jdsupra.com, February 2019

ERISA Tips: Sufficient Information for Purposes of Section 404(c)

In order to be in compliance with ERISA Section 404(c), a plan needs to meet some general requirements; one is that plan participants must be allowed to receive information sufficient for them to make informed decisions. But what constitutes "sufficient information"?

Source: Ntsa-net.org, November 2018

What Every Advisor and Plan Sponsor Should Consider When It Comes to 404(c) Compliance

One of the keys to good fiduciary practices is understanding that nothing can ever be put on autopilot. In order to receive the benefits of ERISA Section 404(c), plan fiduciaries must comply with certain requirements. This article's recommendations will help advisors and plan sponsors evaluate their efforts.

Source: Vestwell.com, August 2018

Section 404(c) Is the Exception, not the Rule

Section 404(c) is a historically misunderstood part of ERISA, with misconceptions rampant even before the 404(a)(5) participant fee disclosure regulations added to the confusion. The general rule is that ERISA plan fiduciaries are liable for all aspects of selection and monitoring of plan investments, and are on the hook for any participant claims for fiduciary breaches should something go wrong. Section 404(c) is a limited exception to this general rule.

Source: Ntsa-net.org, February 2018

Education Is an Important Part of the Fiduciary Process

There have been so many misconceptions that plan sponsors and advisors have had concerning ERISA 404(c) plans. They had this belief that if they just give a mutual fund lineup and some fund profiles to plan participants that they are exempt from liability. But, ERISA 404(c) protection is about following a process and fund profiles are just not enough education to give to plan participants. On the flipside, education to participants doesn't have to amount to an MBA education.

Source: Jdsupra.com, February 2017

The Potential Liability of Participant Directed 401k Plans

This article is about the hidden liability of ERISA 404(c) participant directed plans and how to avoid that potential liability as a plan sponsor.

Source: Jdsupra.com, January 2017

DOL Fee Disclosure Rules Make ERISA 404(c) Compliance Simple

While the 404a-5 notice is primarily intended to benefit participants, it can also benefit 401k plan sponsors by making it easier for the plan to meet ERISA section 404(c) compliance requirements.

Source: Employeefiduciary.com, December 2015

Clearer Regulations Could Help 401k Plan Sponsors Choose Investments for Participants

DOL created a regulatory "safe harbor" in 2007 to limit plan sponsor liability for investing contributions on behalf of employees. In addition, the DOL identified three default investments that would qualify a plan for safe harbor protection. This GAO report examines: (1) which options plan sponsors selected as default investments and why; (2) how plan sponsors monitor their default investment selections; and (3) what challenges, if any, plan sponsors report facing when adopting a default investment for their plan.

Source: Gao.gov, September 2015

The Top Five Things You Need to Know About ERISA 404(c)

Section 404(c) is a historically misunderstood part of ERISA, with misconceptions rampant through the plan sponsor community even before the 404(a)(5) participant fee disclosure regulations added to the confusion. This article attempts to address the fundamental issues regarding ERISA section 404(c) that every advisor should master.

Source: Ntsa-net.org, November 2014

404(c) Compliance Checklist

By complying with ERISA section 404(c), sponsors and other fiduciaries of retirement plans with participant-directed investments may shield themselves from liability for poor investment decisions made by plan participants. This checklist will help you determine how well you are complying with ERISA section 404(c).

Source: Strategicbenefitservices.com, July 2014

404(c) in the Modern World

Section 404(c) follows the Section 404(a) "prudent man standard of care" requirements and offers a type of "safe harbor" for plan sponsors who allow participants to direct the investments of their accounts. However, plan sponsors must meet requirements for investment selection, plan administration, and plan and investment disclosures before they are exempt from any fiduciary liability for losses participants incur as a result of their direction of investments. Current regulations and the current plan administration landscape make it more likely plan sponsors are complying with Section 404(c).

Source: Planadviser.com, March 2014

The Completely Misunderstood ERISA Section 404(c)

Section 404(c) has been in ERISA for 40 years. This amazing participant directed account gift to plan sponsors has been around for four decades and many still don't understand it. Article covers some misconceptions that are in need of correction.

Source: Fiduciaryplangovernance.com, February 2014

How Safe Are ERISA 401k/404(c) Safe-Harbors?

Liability exposure is due in large part to a misunderstanding regarding the protections offered by ERISA's 401k/404(c) so-called safe-harbors. It is the author's experience that plan sponsors confronted with potential liability claims immediately claim that they are absolutely immune from any liability due to said safe-harbors. The mood quickly changes when the truth about 401k/404(c) safe harbors is explained.

Source: Prudent Investment Adviser, April 2013

Achieving Your Goal of Section 404(c) Protection

Complying with ERISA Section 404(c) is not mandatory. However, electing to operate your organization's retirement plan in compliance with the 404(c) guidelines can significantly benefit your plan, its fiduciaries, participants and their beneficiaries. This guide will help you with the development of a Section 404(c) compliance strategy.

Source: DWS Investments, October 2012

DOL Rules for ERISA Section 404(c) Compliance

ERISA requires plan fiduciaries to diversify plan investments and to select investments in a prudent manner. Compliance with the requirements of ERISA section 404(c) may relieve plan fiduciaries of liability for investment losses resulting from a plan participant's or beneficiary's exercise of control over assets in his individual account and other requirements are met. This is an overview of ERISA section 404(c) compliance.

Source: Prudential, September 2012

PowerPoint on 404(c) Compliance

This presentation reviews the following points: Overview of 404(c) fiduciary relief; Basic requirements to obtain relief; Mapping relief; Default Investment Options/"QDIA" safe harbors; Participant fee disclosure regulations; Scope of relief; and, Case law developments and implications.

Source: Morgan, Lewis & Bockius LLP, October 2011.

ERISA Section 404(c) Checklist

This ERISA section 404(c) checklist provides a handy tool for you to compare your plan against best practices. Completing the checklist may highlight areas where additional steps are needed to improve ERISA section 404(c) compliance.

Source: Putnam Retirement Services, June 2011.

Participant Fee Disclosure Regulations -- ERISA §404(c) Changes

This is an article regarding the October 2010 participant fee disclosure regulations. The new regulations make both substantive and cosmetic changes to the 404(c) landscape. Article provides a brief background regarding 404(c) and will discuss the changes the regulations have made.

Source: Sungard/Relius, February 2011.

Fund Facts Sheets Fail Under 404(c)

While the full prospectus must still be available on request, having to automatically provide only the summary may help simplify 404(c) compliance. However, plan sponsors should be careful. What you think is a summary prospectus may not be one at all.

Source: Drinker Biddle & Reath LLP, August 2010.

DOL Approves Use of Summary Prospectus to Satisfy ERISA 404(c)

In September 2009, the DOL issued Field Assistance Bulletin 2009-03, permitting the use of summary prospectuses to satisfy the prospectus requirement of ERISA Section 404(c).

Source: Prudential, December 2009.

29 CFR 2550.404c-1 - ERISA Section 404(c) Plans

This is the code section that describes the kinds of plans that are ERISA section 404(c) plans, the circumstances in which a participant or beneficiary is considered to have exercised independent control over the assets in his account as contemplated by section 404(c), and the consequences of a participant's or beneficiary's exercise of control.

Source: Department of Labor, November 2009.

The New Take on 404(c): Confusion in the Federal Courts

ERISA Section 404(c) provides fiduciaries with a defense against losses incurred by participants who exercise control over their accounts. But the protection applies only to the investment decisions made by the participants and not to the selection and monitoring of the investment options offered to the participants...right? Maybe. For the present, we have an anomaly; the answer depends on where you live.

Source: Drinker Biddle & Reath LLP, May 2009.

Plan Sponsors' Guide to ERISA 404(c)

Section 404(c) of ERISA provides protection for plan sponsors of participant directed plans. This paper describes the requirements of complying with ERISA 404(c).

Source: StanCorp Financial Group, April 2009.

DOL Requirements for Participant-Directed Investments

This article summarizes the DOLs section 404(c) regulations and describes the participant disclosure rules that must be satisfied to obtain 404(c) protection. In addition, it identifies fiduciary obligations that are not eligible for 404(c) protection, impacts of automatic enrollment on 404(c) protection, and Form 5500 reporting requirements for 404(c) plans.

Source: Prudential, July 2008.

ERISA Section 404(c) Meets "The Real World"

Who is responsible for a 401k plan participant's investment losses? Some courts agree with the DOL that the selection of a plan investment is a fiduciary function and, as such, lies outside ERISA Section 404(c)s protection. Other courts take a totality of the circumstances approach and indicate Section 404(c), under the right set of facts, may protect a fiduciary from liability when a 401k plan investment goes bad.

Source: Jones Day, April 2008.

A Step Beyond ERISA Section 404(c)

The increased attention on daily market activity, trading of individual stocks (or narrow sector mutual funds) and the ability to trade participant accounts on a daily basis have all worked to frustrate what the authors believe should be the fundamental, underlying objective of a participant-directed 401k plan: to provide those conditions that allow plan participants the best opportunity for a successful investment experience so that they can retire comfortably.

Source: Chang, Ruthenberg & Long, April 2008.

Illuminating the "Broad Range" Requirement of 404(c)

This column helps illuminate the "broad range" requirement of ERISA Section 404(c) with the language of modern portfolio theory and other nations of financial economics that is found in the Uniform Prudent Investor act and the Restatement 3rd of Trusts (Prudent Investor Rule).

Source: Prudent Investor Advisors, June 2006.

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