404(c); Plan Audits

[Guest ANNEBV]

Plan has an investment "program" where participant completes a questionnaire, identifying his/her investment goals and objectives. Investment manager actively manages account for participant. Can this qualify for 404© protection? How are accounts reported on plan audits? Do all investments have to be identified separately on financial statements or can this "arrangement" be considered one investment? Does your answer change if participant completes questionnaire, investment manager makes recommendation for investments, but participant ultimately chooses his/her own investments (either the recommended funds or funds of his/her own choice)? Any other compliance or audit-related issues to address?

[Guest ERead]

There are several issues revolving around your question.

First - does the plan have a "statement of intent to comply with code 404©". I would think you would, at the very least, need that.

In my experience, 404© is not a guaranteed regulation, the best you can do is try and comply, and in the event of a law suit, you would claim to be operating the plan under reg. 404©.

The plan/sponsor will also need to provide a reasonable amount of education on investing to the participants, rather than just issuing a simple questionnaire. I think your advisor/money manager would need to consult with the participants on a regular basis, and reevaluate their financial positions if he is doing the actual investing. I think you would be better off having the participants direct their own investments under advisement from the financial manager.

Lots of things to consider, good luck. Others may have more to offer, and or disagree, this has just been my experience with 404© plans in the past.

[Guest RARogers]

It wouldn't qualify for 404© if it is actively managed by the investment manager - to use 404© the employee has to choose the investments.

On the other potential arrangement: Question - does the investment manager get fees that vary based upon the participant's choices (that is different fees for different funds)? If so, the investment manager is a fiduciary, not necessarily a comfortable position in this situation.