404(c) statement to particpants

[Guest cculhane]

Does anyone have employers provide statements to participants that their plan complies with Section 404©and if so what does the statement contain? Does the employer gain additional fiduciary relief in doing this?

[Guest]

We don't provide this statement. I don't think it buys you much of anything if the investment tanks.

[Scuba 401]

The Regs specifically provide that if you want to be "404© compliant, you are required to furnish a statement that the plan is a 404© Plan. There are also several other things that must be contained in that statement. See ERISA Reg. 2550.404©-1

[Guest RJM]

There are now three "Plan Feature" codes on the new 5500 form for Plans providing participant investment direction. A Participant 404© Statement is just one piece of 'evidence' that the Employer is meeting the requirements of 404©

[Jon Chambers]

If you want the 404© protection, you absolutely need to include the statement. It's typically incorporated into the SPD, and also in investment information brochures. Here is some typical language:

"The XYZ Profit Sharing and 401(k) Plans are participant directed individual account retirement plans, as defined by Section 404© of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and Section 2550.404©-1 of Title 29 of the Code of Federal Regulations. Under Section 404©, Plan Participants and beneficiaries are generally deemed to be responsible for the results of their investment decisions, and fiduciaries of the plan may be relieved of liability for any losses which result from investment instructions provided by Plan Participants and beneficiaries."

Hope this helps.

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Jon C. Chambers

Principal

Schultz Collins Lawson Chambers, Inc.

(415) 291-3004

[Kirk Maldonado]

There are over 2 trillion dollars in defined contribution plan assets. Where is the flood of litigation that everybody is frantically worried about?

In all the secondary source materials I read, I only heard of a very small number of cases (under five) on this topic. I really think that this risk of liability is blown way out of proportion. There are many more important things to worry about than this, in my perspective.

[k man]

Kirk, i think the problem is that this area,in particular daily valuation and directed brokerage, is very new and dynamic. In recent months, we have seen an explosive increase in participant trading activity, which can be directly attributed to the growing popularity of daily valuation and self directed brokerage options. True, some of the activity has to do with "irrational exuberance" (greenspan term). But if such activity is here to stay than as with everything else, I am sure the litigation will follow.

[This message has been edited by k man (edited 06-01-2000).]

[Jon Chambers]

Kirk, we've had a bull market and a strong economy for years. Fiduciary lawsuits don't generally stem from relative underperformance (although they could and probably should). Lawsuits may mushroom when markets drop, firms layoff large numbers of employees, new jobs are hard to come by, and retirement savings don't offer the cushion that the unemployable former participants had hoped would be available. In a culture of blame, when times get tough, disgruntled former participants will be looking for someone to bail them out. I don't know how the courts will interpret 404©, but it would be crazy not to add the required disclaimer to an SPD.

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Jon C. Chambers

Principal

Schultz Collins Lawson Chambers, Inc.

(415) 291-3004

[Kirk Maldonado]

My comment did not belong in this thread. I'm not sure how it got posted here. Undoubtedly, though, it was operator error.

In any event, I wholeheartedly agree that you should include the Section 404© statement, and I see absolutely no downside to including it.