Fiduciary's Individual Investments Track Those of Plan as to Which He/She is a Fiduciary

[Yesrod5]

I have received the following question from a fairly sophisticated client who is a fiduciary as to his company's 401(k) plan:

"I question whether this role [as a fiduciary] has implications for us as is customary for fiduciaries, such as limiting our ability to invest personally (outside of the 401(k)) in the funds offered in the 401(k)."

Personally, I see no problem -- for the following reasons:

(A) The relevant prohibited transaction provision of ERISA Section 406(b)(1) prohibits a fiduciary from: "deal[ing] with the assets of the plan in his own interest or for his own account."  To me, the stated concern the client expressed is not snared by this prohibited transaction provision (and no other prohibited transaction provision appears to apply); and

(B) the exclusive benefit rule of ERISA Section 404(a)(1) does not appear to prohibit the contemplated action.

In short, i see no problem with a fiduciary using for his individual investment purposes knowledge gleaned from his experience as a plan fiduciary.

Any thoughts?

[Larry Starr]

14 hours ago, Yesrod5 said:

I have received the following question from a fairly sophisticated client who is a fiduciary as to his company's 401(k) plan:

"I question whether this role [as a fiduciary] has implications for us as is customary for fiduciaries, such as limiting our ability to invest personally (outside of the 401(k)) in the funds offered in the 401(k)."

Personally, I see no problem -- for the following reasons:

(A) The relevant prohibited transaction provision of ERISA Section 406(b)(1) prohibits a fiduciary from: "deal[ing] with the assets of the plan in his own interest or for his own account."  To me, the stated concern the client expressed is not snared by this prohibited transaction provision (and no other prohibited transaction provision appears to apply); and

(B) the exclusive benefit rule of ERISA Section 404(a)(1) does not appear to prohibit the contemplated action.

In short, i see no problem with a fiduciary using for his individual investment purposes knowledge gleaned from his experience as a plan fiduciary.

Any thoughts?

Any thoughts? YUP!

Absolutely NO issue with regard to his personal investments. The liability is only on being a "good fiduciary" as it relates to the investments in the plan without regard to what he does on a personal basis.  This of course precludes any self-dealing (where he is getting "special deals" on the outside investments BECAUSE of what he is investing in with the plan assets.  But if he is simply buying, for example, the same publicly offered investment items, there is absolutely NO ISSUE.

[CuseFan]

Circling back to the being a good fiduciary question, if he is personally able to invest in what he is also investing plan assets in - say retail mutual funds for example, if institutional class or collectives are otherwise available - it could be a potential issue. So yes, absent any conflict of interest, what he invests in outside the plan is no issue but he needs to make sure plan investments are prudent and expenses reasonable.