404(c)

[Guest ArkansasChris]

Hi All, first post in this forum. I work for a firm that does turnkey 401(k) plans where we handle both the TPA work and the investment side. We are currently trustee directed and manage our 401(k) accounts in separate pooled accounts (made up of individual stocks and bonds) for each of our separate plans. We are trying to set up a system in which we pool all of our pension plans together, invest in the same stocks and bonds across the board, and allow individual particpants to choose their allocation. That is, everyone would have the same underlying investments, but could choose whether they wanted to be 80% stocks/20% bonds, 60/40, 50/50, etc.

Would allowing the employees to make an allocation choice (but not have any choice as to the underlying stocks and bonds in the investment vehicle) convert our plans into de facto participant directed plans? I've read the DOL/ERISA regs, but am fairly new at this and can't seem to find a definitive answer. Thanks in advance for any help/direction you can provide.

[WDIK]

Would allowing the employees to make an allocation choice (but not have any choice as to the underlying stocks and bonds in the investment vehicle) convert our plans into de facto participant directed plans?

In my opinion, definitely participant directed plans. (Not even de facto, but actual.)

[Guest Sieve]

I would agree whole-heartedaly with WDIK.

However, I assume (by your post & its title) that you really are asking whether the fiduciaries would be protected, under your scenario, by ERISA Section 404©. The answer to that, of course, depends on many facts we do not have, and there always is one BIG caveat to 404© protection: only if ALL 404© requirements are met (and that probably rarely happens, in fact). Your specific facts are not mentioned in the regs (nor are anyone else's, actually), since the regs are meant to be very flexible in order to accomodate different approaches.

Based on your description, I would look specifically at DOL Reg. Section 2550.404c-1(b)(2)(i)©(2)(ii) & -1(b)(3)(i) (in addition, of course, to all the rest of 404©). My first reaction is that you do not meet the requirements of 404©.

[J Simmons]

Hi All, first post in this forum. I work for a firm that does turnkey 401(k) plans where we handle both the TPA work and the investment side. We are currently trustee directed and manage our 401(k) accounts in separate pooled accounts (made up of individual stocks and bonds) for each of our separate plans. We are trying to set up a system in which we pool all of our pension plans together, invest in the same stocks and bonds across the board, and allow individual particpants to choose their allocation. That is, everyone would have the same underlying investments, but could choose whether they wanted to be 80% stocks/20% bonds, 60/40, 50/50, etc.

Would allowing the employees to make an allocation choice (but not have any choice as to the underlying stocks and bonds in the investment vehicle) convert our plans into de facto participant directed plans? I've read the DOL/ERISA regs, but am fairly new at this and can't seem to find a definitive answer. Thanks in advance for any help/direction you can provide.

Hey, ArkansasChris,

I've bolded a portion of your OP-original post. Would you be truly pooling assets of separate plans or merely limiting each to the same underlying investments but directly investing the trust assets of each plan directly and separately in those underlying investments? If truly pooling--such as to get economies--you might run into some securities laws problems.

[Guest ArkansasChris]

Thanks to everyone for their responses, very helpful. John, as to your question, I think it's the latter, but would like to provide some more info just to be on the safe side.

We would be setting up a separte collective trust for bonds, equities and cash and getting a NAV at the end of each day for each separate trust. Each participant would then have the money allocated to their account based on their asset allocation choice. If you need further information or if this is unclear, please let me know. We are in the initial stages of trying to determine if this is feasible and, to be frank, until about three weeks ago I didn't know what a collective trust even was. So, there has been a pretty steep learning curve and I still haven't quite got a handle on all the new terminology. Thanks again.

Chris

[J Simmons]

Hi, Chris,

The securities question has serious implications. There's a forum on this board dedicated to Securities Law Aspects of Employee Benefit Plans. You might do some digging in the threads and posts there to get a 'lay of the land' understanding. Even then, before proceeding with the pooled investments, you ought to get a legal opinion.