How to answer the 404(c) question answered on the 5500?

[Guest JimP]

I have a client calling me regarding 404©. They want to know if section 404© is worth the additional work that they must complete. Since the plan trustee is ultimately responsible for the plan with or without 404© I'm not sure what to recommend. The issue that really concerns me is "What should I indicate on the 5500?" Either way the question is answered, it seems to me, it could come back to implicate the client. Any advise?

[R. Butler]

You seem to actually have 2 questions:

1. Is 404© worth the effort? -- Yes. There is not a reason not to at least make the attempt. Most of the requirements are in practice anyway (3 core investment options, minimum of quarterly transfers, financial education, etc.). Hypothetically, meeting the requirements offers protection against liability, but even if it doesn't you are not worse off for making the attempt.

2. How is the question answered on the 5500? -- If the plan is intending to meet the requirements then enter "2f". Does the plan offer 3 core investment options? Does it allow for quarterly transfers? Is the 404© notice being given to all participants? If the plan is doing these things then the plan likely intends to meet 404©.

Hope this helps.

[Guest bill mahoney]

404© is a lot more complicated and ogf much more importance then is being talked about. Without proper 404© complaince the company, as well as the president, officers, and trustee of the plan can be held personaly responsible for the investment results of the plan. It takes a lot more then 3 investment options, quarterly change options, and quarterly results. The first and most simple thing almost no plan out there does is to notify the plan participants that the plan is 404© complaint and what that means. Without doing this everything else you do for 404© is useless.

[Guest JimP]

Thanks for your input. As a TPA I can certanily indicate the importance of 404© complaince. On the 5500 I can indicate that my clients "intend to comply with 404©."

My concern is that by indicating my clients are 404© compliant it could be argued that this is a fiduciary breach, by the client, if the plan has not made an effort to comply.

It appears that TPA's need to contact all of their clients to inquire if the plan intends to comply with 404©. By doing so, The TPA properly represents the wishes of the client. The problem is due to the revision of the 5500 and the late release of some tax preparaton software, the TPA's must educate their clients in the worst time period possible.

[R. Butler]

I'm not sure how all the TPA firms operate, but we pretty much know if the plan intends to comply 404©. We prepare the actual 404© Notice and 404©Resolution at our office. Obviously any TPA knows the investment options and we also have sufficient conatct with the investment rep. to at least have a grasp as to whether investment education requirements are being met.

I guess my comment really is that if the client hasn't made an effort to comply, then the sponsor did not intend to comply for the year in question. As Mr. Mahoney states the easiest thing to verify is whether 404© notices have been given to all participants. If the notices are not even being distributed then I don't see how a plan sponsor intends to comply.

[Guest JimP]

I agree, with our regular clients we know what the client intends. We have a group of clients we call "complaince clients" where we complete testing and file the 5500. For this type of situation the client should be contacted so the 5500 is properly completed.[Edited by JimP on 09-29-2000 at 02:13 PM]

[Kristina]

If my client does not have documentation that all of the parameters of 404© have been met in his files, I will not indicate on the 5500 that the plan is 404©, but that it is either partially participant or totally participant directed. I fear that coding the characteristic of 404© on the 5500 will just wave a very big red flag for bored DOL auditors, so I would want to verify that the documentation exists on the date the 5500 is filed.

[Guest rmeigs]

Here is an article that may be of interest. The title is: Revised Form 5500 and ERISA 404© Compliance

The web address is: http://www.reish.com/framemaker.cfm?masthe...m?ARTICLEID=236