In order to be in compliance with ERISA Section 404(c), a plan needs to meet two general requirements that involve investment options and participant involvement.
This tip is based on “Section 404(c) Compliance: Added Protection Makes it Worth the Effort,” a Wells Fargo article.
Investment Options. The plan must offer a broad range of ways to invest. This means, says Wells Fargo, that it must offer at least three investment options. And each of those options must:
- be diversified;
- offer risk and return characteristics different from those of the other investment options; and
- offer diversification.
Participant Involvement. The plan must allow participants to become informed about their investments, and it also must allow them to direct those investments. This entails allowing participants to:
- give reasonable instructions regarding their elections;
- have an opportunity to obtain written confirmation that their instructions were carried out; and
- receive information sufficient for them to make informed decisions.
Participants should be able to modify their investments on at least a quarterly basis, Wells Fargo says, but that may not be sufficiently frequent if a particular form of investment is particularly volatile.
Editor’s Note: ERISA Tips is a feature provided with you in mind — to make the newsletter more useful to you! If you have any content for ERISA Tips or the 403(b) Advisor that you would like to contribute or suggest, please contact John Iekel, editor of the 403(b) Advisor, at [email protected].
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