what responsibility does a 457 plan sponsor have in regards to investments

[Guest thill]

hi.

i am in the benefits world but in a very small niche. we administer 457(e)(11) plans, which are exempt from 457. but we try and draw from the rules of 457 or erisa rules because the guidance for 457(e)(11) plans is little to none.

the overwhelming majority of our our DC plans are pooled accounts utilizing a rabbi/grantor trust. the plan assets are the sponsors until the volunteer reaches the payout age which creates the taxable event. the gov't sponsor sets an investment policy and invests the assets conservatively (usually no more than 20% exposure to stock-based mutual funds).

we have some clients that really want to have the option for participant directed plans. we are investingating daily recordkeeping platforms or hooking up withanother TPA to provide this.

some of these govt sponsors think that they will remove, or substantially reduce, their fiduciary responsibility by letting the participants direct their own investments rather than having to set an IPS to direct the investment of the entire asset pool.

my questions really are, if participant direction is allowed:

1) what are the requirements under a traditional 457 plan as far as education to the participants. does the sponsor have to have an investment professional available for education, or can everything be delivered via web site stuff? n if an investment professional must be involved, can it be over the phone or does it require any manditory face-to-face availability?

2) how much does this really take the sponsor off the hook? what if a participant looses his whole account due to bad investment choice - does the sponsor have any liability for allowing the investment option, or giving the choice of participant direction?

3) in your opinion, should a govt sponsored plan that is set up as i mentioned - where he plan assets are assets of the sponsor (local govt) until the participant meets the payment eligibility requirements, even allow participants to direct the investments? since the assets are technically the sponsors (this creates the substantial risk of forfeiture) is it prudent or even allowable for the participant to direct the investment of the sponsor's assets? i am sure they are precident here, but would like your take. we don't want to cloud the issue that the trust assets are the sponsors assets.

thanks so much.

[Guest thill]

sorry, in re-reading this i see this was a long question! i should also add there is no participant contributions to this - all contributions to these plans are from the sponsor.