ALL Index Funds in a 401(k)?

[Guest AmyHarle]

Would a sponsor that decides to offer only Index funds in his 401(k) Plan be intending to comply with ERISA 404©?

[JanetM]

It is possible. You would have to look at the SPD or enrollment materials to be sure.

[QDROphile]

The 404© regulations require a plan fiduciary who intend to comply with 404© regulations to state that intent in materials given to the participant. The statement need not be in any particular materials, but is often in the SPD or the investment information materials.

[Guest AmyHarle]

Thanks so much for the replies - I understand that their intent needs to be stated...but, inherently, is there any fiduciary issues with offering only index funds?

[Guest jims]

On the investment side, I believe only 3 investments alternatives are needed for 404©. They generally are equity, fixed income, and capital preservation. The investments alternatives must be diversified, have materially different risk and return characteristics, and allow a participant to construct a portfolio appropriate for their circumstances. I would expect that you could find appropriate index funds in these general asset classes. If you only had 3 funds, and one equity fund was an index of a very narrow sector, that would probably be a problem. But a broader index fund should work.

[Kimberly S]

Given the current focus on fees, index funds often sound very prudent indeed.

[401 Chaos]

I suspect you get different answers on the investment side (and thus potentially on the fiduciary front) depending on whether you ask Vanguard or a registered investment advisor whose whole purpose in advising the plan is to recommend actively managed funds (or mix of actively managed funds) rather than simply having a group of passive index funds. Our advisors never include any of our plan's index funds in any of their recommended portfolios because the whole idea of the model portfolios is that they should be picked to offer greater diversification, protection in both up and down markets, ect. than a similar passive portfolio. I do not think, however, that necessarily means that a selection of just or mostly index funds could not satisfy 404©.