violation of 404(c)?

[joel]

A governmental plan is a combination DB/DC. The investment accounts that fund the DC lifetime annuity are controlled by the retiree. There are only 2 investment options: A fixed or variable annutiy. Investment election changes may only be made in the month of April and are not subject to change until the following April. One may not move between the two options in a lump-sum. The fastest one may move between the two is at a rate of 1/12 of the account balance over a 12 month period. Does this rule violate section 404©?

[QDROphile]

404© is a section under ERISA and ERISA does not govern governmental plans.

[joel]

I recognize that Erisa does not apply to governmental plans. But if it did would the plan be in violation of 404©?

[AndyH]

Of course, in virtually every way, but it might be more correctly phrased as "does not qualify for the protection of 404©", rather than in violation of.

[Guest Keith N]

I agree entirely with AndyH, but just to clarify, there is no 404© "violation" since 404© compliance is not required. 404© is a code section that theoretically offers plan sponsors some protection from lawsuits if participants make poor investment decisions. It is touted by investment types as a "fail safe", when in reality it has never been tested in court and may not offer any significant protection. I tend to view it as a guideline, but sponsors need to know that they still bear some responsibility for their decisions.

Some sponsors make no effort to comply due to the additional informational requirements and the added cost. There is certainly nothing wrong with this. Most smaller plans can't afford to comply, so they tend to use simpler designs with few options and choices.

The provisions you described don’t even come close to complying.