404(c)

[Guest ElKH]

We are finishing up our plan restatements, and an ongoing issue for our self-directed 401(k) plans is whether or not the plan is 404© compliant.

It's not that I have any doubts that these plans are by the nature of their administration compliant with 404©, but my take is, unless the sponsor has specifically said, "We want to be a 404© plan," I don't think we should just assume that they are.

Someone else's take is that if you are not specifically selecting an option to be compliant with 404© it raises a red flag, and you are more vulnerable. We should therefore be selecting the 404© option in our documents where self-directed accounts exist.

So, what is the answer?

[E as in ERISA]

In order for a fiduciary to avail itself of the protection of ERISA Section 404©, it must meet ALL of the regulatory requirements. One of those requirements is to notify the participants that the plan is intended to be a Section 404© plan and the implications of that:

Sec. 2550.404c-1(b)(2)(i)(B)(1) "The participant ...is provided ...An explanation that the plan is intended to constitute a plan described in section 404© ...and that the fiduciaries of the plan may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by such participant or beneficiary"

The updated SPD regulations (at Section 2520.102-3 (d)) require that, if applicable, a plan be identified as a Section 404© plan in the SPD.

There is nothing in the statute or regs that specifically says anything about including this in the plan document itself.

[Guest ElKH]

So, bottom line is, it's a conscious choice made by the plan sponsor . . . and we shouldn't make any assumptions.

[E as in ERISA]

Exactly.

[QDROphile]

Don't mix up sponsor, fiduciary and plan administrator. Section 404© is primarily a fiduciary concern.

[Guest ElKH]

In this case, they are all one and the same. I appreciate everyone's response. These issues can get so sticky!

[ljr]

Some prototype documents do have a check the box as to whether the plan intends to be 404© compliant. When the box is checked, the appropriate language is included in the SPD. We have decided to check the box for 404© compliance when plans are truly trying to comply with all the rules. Current thinking seems to be you are better to try to comply even though it's almost impossible to get 100% of it right and so state. In the past, people thought it was safer not to say you were complying if there was any possiblity you might not be. This has been a matter of some debate so I'd agree it has to be an employer decision and it must be disclosed in the SPD.

[E as in ERISA]

But QDROphile has a good point. It is the fiduciaries who want the protection and who have the obligation to provide the explanation required by the 404© regulations. So even if the plan sponsor doesn't make the decision in the plan document, the fiduciaries still have an opportunity to make the designation. I think that the plan administrator (who is generally a fiduciary) is generally responsible for the SPD. But I don't know that failure to include the 404© status in the SPD necessarily causes the fiduciaries to lose their protection under 404©? It's just a reporting requirement....

[QDROphile]

ElKH:

It is usually a bad idea to have the plan sponsor as the primary fiduciary of the plan. This point has been discussed in other threads. Your assignment of fiduciary functions should be reconsidered.