Participant Directed?

[Guest jmlumpkin]

401(k) plan offers participant directed accounts with various fund options with mutual fund company A. employee investment education relative to mutual fund is such that, alone, it meets the requirements for 404© fiduciary "protection."

however, a segement of the participants (2 hce's and 1 nhce) are provided an "expanded" fund menu that inlcudes funds offered by mutual fund company B.

am i correct in assuming that this scenario does not meet the requirements of 404© as all of the participants have not been provided the same investment alternatives?

also, would the participants who have the "limited" fund menu have an argument for requesting the employer to make up any difference between the performance of the "expanded" fund menu vs. the "limited" fund menu?

[rcline46]

You have a Benefits, Rights and Features failure in the plan. Get an attorney fast and find a way out. You are in disqualification territory.

[Jon Chambers]

Without disagreeing with rcline46 (in fact, I completely agree with him), to answer your question directly, 404© protection is transactional in nature--i.e., those participants in a 404© compliant structure have 404© protection, participants partially in a 404© compliant structure have 404© protection for transactions in the 404© compliant portion of their account.

Hope this helps,

[J2D2]

Doesn't whatever protection is afforded by 404© flow to the investment fiduciary, not the participant?

[Jon Chambers]

Should have been more careful with my grammar. What I intended to say was:

"...investment fiduciares would receive 404© protection from claims made by participants in a fully 404© compliant structure. Further, in a partially 404© compliant structure, investment fiduciares would receive 404© protection from claims made by participants relating to transactions in the 404© compliant portion of their account."

Does everyone follow this? I'm not sure I follow it any more.

[four01kman]

Sure, if it is 404© compliant, it is covered, if it is not 404© compliant, it is not.

[Jon Chambers]

Perhaps an example would help, b/c the grammar got me all tangled up. I was trying to explain the transactional nature of the 404© protection, but didn't do a good job.

Assume a plan with 10 funds and company stock. For whatever reason, the 10 funds are 404© compliant but the company stock is not (perhaps the sponsor forgot to identify a fiduciary responsible for keeping participant stock trades confidential, or missed some other technicality). Investment fiduciaries can use a 404© defense for any trades involving only the 10 funds. Investment fiduciaries cannot use a 404© defense for any trades involving company stock, even if these trades are to or from one or more of the 10 funds.

[RCK]

Jon, I admire your persistence in getting that expressed in a manner that even I could understand.

I'd like to return to rcline46's point. There is a distinct possibility of a Benefits Rights and Features problem, depending on what the non-expanded fund group looks like. This is much more dangerous than the potential 404© issue.

RCK

[Guest quinn the car fixer]

isn't the BRF issue dependent on the nhce concentration ratio and how many hce & nhce's in total in the plan? Just on the surface you don't have a BRF violation?

[Guest jmlumpkin]

based on the demographics of hce's and nhce's, i can assure you that we have a benefits, rights and features issue with this plan. 2 of 3 highly compensated partcipants were offered the "expended" fund selection, while only one of a number of nhce's were offered the same fund options.

however, please note that it was not the intent of the employer to provide an "expanded" fund menu to hce's. rather, my understanding is that these particular employees were (for whatever reason) permitted to retain the investments that were available through their previous employer.

thanks for all of your input.