About 401k Plan Fiduciary and ERISA
About 401k Plan Fiduciary and ERISA
About 401k Plan Fiduciary and ERISA
ERISA intent
When Congress passed the Employee Retirement Income Security Act of 1974 (ERISA), it made federal law the supreme law of the land as to the regulation of pension plans and as to certain employee welfare plans. Tucked neatly within the ERISA statute, at its inception, is a commonsense provision stating that if individual participants are given responsibility for choosing their own 401(k) plan investments, then the 401(k) plan's fiduciaries are not responsible for the participants' investment losses. For many years after the passage of ERISA, almost no notice was given to this provision.
During the 1980s, as 401(k) plans containing participant investment direction features began to replace other pension plan vehicles, ERISA Section 404(c) became a subject of significant interest.
The Dept Of Labor, (DOL) however, did not publish regulations concerning ERISA Section 404(c) until October 13, 1992, some 18 years after ERISA's passage. Today, 404 c compliance is a mainstay objective to most employers' plans.
Benefits for Plan Sponsors
In general, if a plan meets section 404 (c) requirements and related regulations, the plan sponsor and other fiduciaries are not liable for retirement plan losses resulting from plan participant's investment decisions.
Compliance with 404 (c) is optional, but you should carefully consider the implications of noncompliance: you the plan sponsor, could be held liable for what happens with assets in employees retirement accounts, even though you exercised absolutely no control over their decisions.
401k plan fiduciary basics
When you agree to comply with section 404(c), your participants also benefit.
Employees know they will have access to effective tools and information they need to manage their own investments or implement advise from their financial advisor.
They can count on their employer to provide:
A broad and diverse range of investment options
Frequent opportunities to change how their accounts are invested
Educational opportunities that provide the information they need to make informed investment decisions
If your retirement plan allows participants to direct their own investments, compliance with section 404(c) of the employee retirement income security act of 1974 (erisa) provides protection for you the plan sponsor.
Fiduciary responsibilities
Even if relieved of liability for the participants investment decisions, the fiduciary retains responsibility for:
Selecting and monitoring the plans investment options to ensure they remain competitive and meet the diverse need of the plans participants on an ongoing basis
Periodically reviewing the plan's operations to ensure that the frequency with which participants can change their investments continues to be appropriate given the volatility of the investment options
Ensuring that participants have been given sufficient disclosure about the plans investment options on an ongoing basis
A plan sponsor may have to direct an investment if a participant fails to make an investment selection. The pension protection act of 2006 provides a safe harbor to plan sponsors investing participant's assets in qualified default investment alternatives. The plan sponsor must notify participants a reasonable time before each plan year end and:
Explain their rights to designate how contributions and earnings are invested
Explain the default investment in which contributions and earnings will be invested if no investment designation is made
Give participants a reasonable amount of time to make an investment designation, change their contribution amount or opt out
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