Choice of whether or not to self direct.

[R. Butler]

We have a takeover plan. Investments currently are not participant directed. Employer wants to allow participants the option to either self direct or to allow the employer to continue to direct investments. If a participant initially chooses to allow the employer to direct investments, that participant could later change his/her mind and later choose to self-direct at any time.

Can the plan sponsor still avail themselves of 404© relief, assuming all other requirements are met?

[QDROphile]

You can have a plan that complies with 404© with respect to the portion that is under the direction of the participant. The plan has participant directed funds and a fund that is is under the management of the plan fiduciary (which we hope is not the employer, but unfortunately often is). The fiduciary is not responsible for the investment results of the participants relating to investments in the participant directed funds. But if a participant wants some or all of the participant's account in the fiduciary managed fund, the fiduciary has all of the ERISA duties (prudence, diversification, etc.) with respect to that part of the account invested in the managed fund.

I don't like the implication that the participant has a one time choice. I think it is better to allow the managed fund to be available as an ongoing option, and a participant can choose from time to time to have some or all of the participant's account invested in the managed fund. Be careful about the liquidity of the managed fund if it is subject to traffic in and out.