404(c)

[Guest Kevin1]

I'm trying to come to grips with the 404© requirements. One of major concern is the requirement that participant investment instructions be given to an identified plan fiduciary who is obligated to comply....

Usually self directed accounts are set up with a mutual fund company, the money is transfsered into these accounts and the participant can direct investment as he/she deems desireable. They make a phone call or invest via internet. There is no fiduciary involved at any level of this. At best the broker will respond to participant questions, but he is not a fiduciary and does not receive direction.

How are you dealing with this core requirement?

[E as in ERISA]

Is this delegation provided in the plan? Section 405©(1)(b) of ERISA says a plan document can provide procedures for a fiduciary to designate others to carry out functions. Section 3(21) says the term fiduciary includes those who are designated under such provisions.

[QDROphile]

Very creative use of section 405, but a bit off. Have you ever tried to appoint a mutual fund company, brokerage or other services provider to be a fiduciary in any context, let alone this one? Also, you can't make someone a fiduciary secretly.

I think a more realistic approach is to consider the service provider to be the agent of the fiduciary. Instructions to the agent are instructions to the fiduciary. Fiduciaries don't really handle much administration directly. How many fiduciaries perform an ADP test? Of course, the fiduciary retains responsibility for what the agent does. The agent is not appointed secretly. The agent is doing the job for which the agent is engaged, such as receiving investment orders.

[E as in ERISA]

I think that's exactly what the statute is doing. Providing the legal basis for saying that the agency type principles apply here.

[QDROphile]

No. There is a big difference between appointing a fiduciary and engaging an agent. The ERISA liability relationships are very different.

[Locust]

I would say that the person who has has the responsibility for implementing investment instructions is a fiduciary for that limited purpose, whether the person is labeled a fiduciary in some document and whether or not the person explicitly recognizes that he or she is a fiduciary. Under this analysis, the mutual fund that takes responsibility for receiving and implementing investment instructions is a fiduciary for that purpose, the documentation for the arrangement recognizes this, and the mutual fund is identified as being the person with this responsibility - so in an arrangement in which a mutual fund receives and implements investment instructions, I would think that the 404© requirement is met.

On the other hand when you have a TPA implementing the instructions, I would think the documentation given to participants would have to identify the TPA and the TPA's responsibilities. Those responsibilities, if accepted by deed or document, would make the TPA a fiduciary. If the TPA doesn't want that fiduciary responsibility, it could structure the arrangement so that it was acting as a nondiscretionary agent of the fiduciary, with the TPA responsible for administrative chores only, but this would require some other fiduciary to be ultimately responsible and identified. Perhaps the CFO or HR Director could be the fiduciary for this purpose; this of course would require the CFO or HR Director to be involved in the process at some level.

[E as in ERISA]

I'm not talking about making the mutual fund company a defendant. I'm just talking about the fiduciary being able to argue that 404© can be used.

Under my scenario, the fiduciary argues the "instructions to a fiduciary" is satisfied because the plan allows the fiduciary to delegate functions to someone. And they have delegated to the mutual fund the function of taking those instructions.

Under your scenario, the fiduciary argues that the "instructions to a fiduciary" is satisfied because the mutual fund is an "agent" of the fiduciary for taking those instructions.

In both cases you're arguing the fiduciary has delegated certain duties to the mutual fund and that this delegation satisfies the 404© requirement.

But as long as the mutual fund is only performing ministerial functions with no discretion, then the status shouldn't have much other impact.