Would the Voluntary Fiduciary Correction Program apply here?

[katieinny]

The employer is responsibile for selecting the investments for non-elective PS contributions going into the plan. EEs handle the investments of their own deferrals and the match. The employer discovered that, for several years, the PS assets hadn't been invested in accordance with instructions that were sent to the Trustee many years ago. He admits that he hadn't been closely monitoring statements and didn't discover the error until recently. The employer is willing to make the earnings adjustment, but this error doesn't seem to fit under the "covered transactions" section of the Voluntary Fiduciary Correction Program. Should it be submitted under that program anyway? We're also wondering how far back he needs to go. Isn't there a statute of limitations?

[Bird]

Sounds like the Trustee failed to follow the directions provided and should have the liability, no? It seems unusual to me that an employer is giving specific investment directions, unless it's a corporate trustee, in which case they have deeper pockets anyway. Maybe I just see things differently (often). Anyway, I don't really know if it would fit VFC.

[My 2 cents]

I am not involved with 401(k) plans, but I wonder whether the employer, as plan administrator, has any fiduciary duty to oversee the trustee and/or be considered to have failed to discharge its duties due to the failure of the trustee to properly follow investment directions. I would expect that the trustee would be the party primarily at fault, and that the burden of failing to meet fiduciary obligations should be primarily on the shoulders of the trustee.

[katieinny]

The Trustee is a directed Trustee, not discretionary, so fiduciary liability is limited at best. The ER has 30 days to review statements and notify the Trustee if there's a problem, which he didn't do. From the research we have done to date, it's not even definite that there was a breach of fiduciary duty on the ER's part. He looked at the statements, but didn't notice that the PS assets weren't in the right fund. It's just as likely that the investment that was selected several years ago could have done worse than the one the money was in. Even if he had noticed the error, he might have decided that the current investment was the better one. The whole thing seems too subjective. It's definitely a gray area.