PLANSPONSOR - December 2022-February 2023 - 38

FIDUCIARY FORUM
Check Your
404(c) Compliance
Guard fiduciaries from participants' bad investment decisions
W
e have written often about creating a work plan for
retirement plan committees to keep track of the various
steps they should take-whether at every meeting,
annually or regularly based on some other time frame.
Reviewing a plan's investment options is generally something
that is done at every quarterly meeting.
On the other hand, reviewing the investment policy statement,
receiving fiduciary training or performing a deep dive
on target-date funds may be more infrequent-maybe annually
or less often than that. Retirement committees relying on the
protections offered by Employee Retirement Income Security
Act Section 404(c) may want to add a 404(c) review to that work
plan-at least every few years or in connection with a recordkeeper
change.
... ERISA Section 404(c) is
just one more component
to help provide committee
members with some
fiduciary protection.
Fiduciary Relief
What is ERISA Section 404(c), and why might a plan fiduciary
care? This section-as further expanded by its regulation-is
the ERISA provision that generally provides the committee with
fiduciary relief from responsibility for the investment decisions
plan participants make. You should all know by now that there
are fiduciary responsibilities with respect to selecting and monitoring
the investment options in a defined contribution plan
such as a 401(k) or 403(b).
Committee members generally understand this obligation,
and it doesn't come as much of a surprise. What often does
surprise them is that they may also have fiduciary responsibility
for how the plan's participants invest their accounts-that is,
unless ERISA Section 404(c) applies.
If the requirements of Section 404(c) are met, then plan
fiduciaries are not considered responsible for participant decisions,
though they still retain fiduciary obligations with respect
to the investment options the plan offers.
Satisfaction Guarantees
As a starting point, Section 404(c) protection may be applicable
if the plan provides a broad range of investment alternatives
to choose from and the participant or beneficiary exercises
control over the assets in his or her plan account. This means the
participant or beneficiary has the opportunity to give investment
instructions and receives or can obtain sufficient information in
order to make informed investment decisions.
Participants and beneficiaries are considered to have sufficient
information if certain disclosures and information are
supplied to them. Many of the disclosures are met by virtue of
providing the periodic investment and fee information that must
be disclosed under ERISA Section 404a-5.
But that isn't all-and it's worth reviewing all of the specific
requirements to make sure each is satisfied. For example, there
should be an explanation that the plan is intended to meet
ERISA Section 404(c) and that this relieves the fiduciaries of
liability for participant investment instructions. Additionally,
special confidentiality requirements may also need to be
disclosed for those plans that still include employer securities
as an investment option.
Only three investment alternatives are needed to constitute
a broad range of investment options, but they must allow
for achieving a portfolio that is diversified and has materially
different risk and return characteristics.
Each of the specific disclosures and other requirements
needed to obtain ERISA Section 404(c) protection are beyond
the scope of this column.
However, what is important to remember is that ERISA
Section 404(c) is just one more component to help provide
committee members
with
some
fiduciary
protection.
Instructions to perform a periodic review in order to make sure
each requirement necessary for this protection is being met are
worth including in the committee work plan.
Summer Conley is a partner in the Los Angeles office of
Faegre Drinker Biddle & Reath LLP. Michael Rosenbaum is
a partner in the firm's Chicago office. Both work extensively
with plan sponsors and their internal investment and
administrative committees to ensure that they understand
and implement best practices with respect to governance
and fiduciary oversight.
38 PLANSPONSOR.COM December 2022 - February 2023 Art by Joseph Ciardiello
http://www.PLANSPONSOR.COM
PLANSPONSOR - December 2022-February 2023

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