Force self-direction of investments

[Trekker]

May a 401(k)/PSP force participants to self-direct the investment of their account? The plan currently has a menu/platform but the sponsor wants to get rid of that and have each participant get their own broker and direct their own investments. I'm concerned about participants who either are not that savvy or do not want to self-direct.

If it is permissible, is it correct to say that a blackout notice be required when eliminating the menu?

Thanks.

[mphs77]

If there was a QDIA in place I would think you can.....but my experience tells me that

forced self direction is a train wreck waiting to happen.

[BG5150]

What does teh DOL have to say about having ONLY brokerage accounts, with no DIA's?

[Bird]

You're not talking about forcing participants to self-direct; you already have that, but presumably there is a default under the existing platform for those who don't make an election.

So, you, the idiot sponsor, or someone else, needs to figure out what to do with accounts for participants who do not make an election. You can not, literally, force someone to direct their account.

What is proposed is not a good idea, to understate the case. Sponsors think that if they let everyone do whatever they want, they avoid liability. Not so.

[Peter Gulia]

Without entering the debate about whether an individual-account retirement plan that lacks designated investment alternatives is good or bad:

May a 401(a)&(k) plan provide that an election to make elective-deferral contributions (whether non-Roth or Roth) is not a valid election unless it includes the participant's investment direction?

[RatherBeGolfing]

Without entering the debate about whether an individual-account retirement plan that lacks designated investment alternatives is good or bad:

May a 401(a)&(k) plan provide that an election to make elective-deferral contributions (whether non-Roth or Roth) is not a valid election unless it includes the participant's investment direction?

No. Making deferrals and directing investments are two separate issues.

If investment direction is THAT big of an issue to the employer/plan administrator , they should simply make the plan trustee directed.

[RatherBeGolfing]

May a 401(k)/PSP force participants to self-direct the investment of their account? The plan currently has a menu/platform but the sponsor wants to get rid of that and have each participant get their own broker and direct their own investments. I'm concerned about participants who either are not that savvy or do not want to self-direct.

If it is permissible, is it correct to say that a blackout notice be required when eliminating the menu?

Thanks.

Bad idea. Also, I don't think the sponsor can force a participant to set up their own account. If the participant does not act, the sponsor will have to. After establishing an account at XYZ because the participant failed to act, you would have to make sure the assets go into a suitable default investment.

[ESOP Guy]

I am going to admit I don't know the answer to this but here is something to think about before this gets done.

Back in 2008 I still worked on a few 401(k) plans. A client I had that was a dental practice. The dentist wanted to have his own brokerage account in his 401(k) plan. So he set everyone in the practice with a brokerage account inside the 401(k) plan. In what turned out to be a brilliant move in hindsight one of the dental hygienist put 100% of her money (many years worth of money-- for her it was a lot of money) into Ford stock towards the bottom of that stock's price

She tripled her money in the long run. But I couldn't help but think what if she had put 100% into GM right before it went into bankruptcy.

I can imagine a lawsuit coming from the later decision. To me the question is if the people start picking so radical investments are there any fiduciary concerns? As pointed out be others the rule isn't if they decide there is no liability on the part of the fiduciaries. I am not sure you should do this without some limits and I am not sure what those limits ought to be. But I keep thinking this could be a lawyer's dream fact set.

[GMK]

If the sponsor/administrator doesn't feel adequate to meet the responsibilities of selecting suitable-for-a-retirement-plan investment options (and there's no shame in that), then RatherBeGolfing's suggestion of making the plan trustee directed is the way to go.

[MoJo]

The simple answer is, of course a plan can require that all assets beheld in brokerage accounts under the control of each participant. The rest of the story is that the plan FIDUCIARIES ALWAYS REMAIN LIABLE FOR PLAN INVESTMENTS UNLESS THE PLAN IS 404© COMPLIANT. The question you have to ask is whether or not a plan with unlimited brokerage accounts ONLY can ever be 404© compliant.

IMHO, it can not....

[Trekker]

Thanks one and all for your input. Very helpful!