404(c) compliance

[Guest breakwater]

I am creating a service proposal for a new client. The client currently has one investment option available to participants for all pre-tax contributions. It is a privately held fund. The current provider has assured the client that the plan in compliant with ERISA 404© requirements regarding a "broad range" of investment options. I'm not sure that is the case. Does anyone have any input?

[Belgarath]

It depends upon what you mean by "one investment option available to participants." For example, pick some big fund company - like Fidelity. If the only investment option is a Fidelity common stock fund, then no, this doesn't meet 404© requirements. If on the other hand, Fidelity funds are the sole investment choice, but within that fund family the participant can elect various funds, it could very well be 404© compliant in terms of the investment options allowed.

[Guest breakwater]

The one investment choice is a single fund seeking to provide moderate growth and the reinvestment on income. It seems to me that the three diversified investment alternatives are not there. Also, if this is the only option a participant has, how can he materially affect the potential return on his account and control the degree of risk?

[mming]

He can't. The fiduciary is on the hook for everything. And consider how the question on the 5500 will look that asks whether 20% or more of the plan's assets were invested in a single security, etc.

[JanetM]

This sounds like trustee directed plan not particpant directed. You have no 404c protection unless meet the 20 or so criteria. 3 diversifed options, participant control over selecting investments ... etc.....

Not that anyone even knows what that protection really means. Or how far it really extends until boomers file law suits and the court interprets 404c.

[Bird]

As described, there is no 404© protection. But then again "1" investment "option" is nonsensical. You mean that the participants have no choice in their investments? That's not necessarily a problem...unless the trustee is being told that he has 404© protection.