Participant Investment Direction - Alienation Issue

[Guest ljelaw]

If a participant permits his/her spouse to direct the investment of the participant's account under a 404©plan, does that in any way violate the anti-alienation rules under Code Section 401(a)(13)? Does the person who can act under the power become a plan fiduciary either in general or with respect to the participant? Thank you.

[Guest PeterGulia]

It's fairly common for a retirement plan to permit another individual, acting as an attorney-in-fact, to use the participant's power of investment direction. That power should not be seen as contrary to any exclusive benefit or anti-alienation provisions because it's the participant who grants the power.

A participant is an ERISA plan fiduciary to the extent of his/her right of investment direction. Also, an attorney-in-fact always has fiduciary duties to his/her principal. However, in the typical kind of participant/spouse situation (assuming a continued marriage), the risk of meaningful liability seems modest.

Check the plan's procedure concerning a power-of-attorney. The fact that a power meets the requirements of the maker's state law does not mean that a plan administrator will accept the power. A plan administrator has the prerogative to impose its own requirements. See Clouse v. Philadelphia Electric Company, 787 F. Supp. 93, 15 Employee Benefits Cases (BNA) 1347 (E.D. Pa. 1992).

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