investment selection

[Guest cabenefits]

An investment advisor would like to have participants' funds invested in a Default Portfolio if they do not choose available funds. Does this need to be in the Plan document? What other notification may be required?

[g8r]

I don't think you need anything in the document. As far as disclosure goes, it may not be required but I'd advise the employer to do it.

The DOL has made it clear that investing in a default fund gives the trustee NO protection under ERISA 404©. In order to have protection, there must actually be affirmative control over the account. Thus, whether or not you disclose the default fund won't matter as far as the DOL goes. Ultimately, the trustee is solely responsible for ensuring that the participant's account is invested prudently and is diversified. Thus, the key is to advise the employer about the risk. But, if you end up in court, we all know that bad facts make bad law (and regulations have been overturned in court). Of course if you end up in court you lose even if you win the case, but there is no downside to providing lots of disclosure.