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What is Section 404(c) of the ERISA act?

ERISA, the federal Employee Retirement Income Security Act, is a law that protects Texas employees’ private pension plans, such as the 401(k) and the 403(b). Another part of the law addresses 404(c) plans, which allow employees to manage their retirement account investments themselves instead of a fiduciary, who makes investments on behalf of employees in other plans.

Employees who feel qualified to make investment decisions or who want to be in charge of their own funds may consider the 404(c) so they can direct the amount of savings to invest in different types of companies. Additional reasons some may want to self-direct their investments is so they can follow their religious or moral tenets and avoid investing in companies they may object to, such as those that conduct animal testing or are owned by groups of another faith.

Employers who act in accordance with employee wishes for a 404(c) can reassign the responsibility for making bad investment decisions to the employees who take charge of their own plans. This, in essence, lets employers or plan fiduciaries off the hook for losses that result from poor investment choices. Employees would not be able to hold employers responsible for plan losses in this type of arrangement, also known as “safe harbor” for financial decision-makers.

Employers must meet the requirements for selecting investments and administering the plan, and make all required disclosures before they are exempted from losses and fiduciary liability for losses experienced by participants who make their own decisions. To qualify for safe harbor protection, the plan fiduciary must provide a wide range of investment opportunities for participants to select from and allow employees to control the assets in their accounts.

This article is informative in nature and should not be considered legal advice.

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