Sec. 404(c) plan participant education and communication.

• Author: Germano, Lisa C.

Definition

A Sec. 404(c) plan is an individual account plan (generally a profit-sharing, Sec. 401 (k) or money-purchase plan) that provides a participant the opportunity to choose from a bread range of investment alternatives that includes at least three diversified investment categories with materially different risk and return characteristics.

Not only must participants be given the opportunity to exercise investment control, they must affirmatively take advantage of and actually exercise it. A participant must have a reasonable period in which to give investment instructions (written or otherwise, with an opportunity for a written confirmation) to an identified fiduciary or designated agent. The plan fiduciary mast ensure that participants are provided--or can obtain on request--basic information about investment choices.

If a participant exercises control over his or her account, then (1) the participant is not a plan fiduciary because of such exercise; and (2) plan fiduciaries do not bear the risk of investment loss due to the investment choice a participant makes.

Requirements

The Sec. 404(c) regulations are complex when analyzed, yet simple when taken at face value. The heart of the requirements are access to appropriate information, ability to access the account to effect a change and adequate education.

Frequency of Investment Instructions

For participants to have exercised proper control over account investments, they must be able to transfer among investment alternatives at intervals reasonably commensurate with on investments anticipated volatility. The regulations' premise is to allow investment transfers in such a way as to minimize losses.

Volatile Investment Rule

At least one of the core...