This report is an evaluation of the effect of the U.S. Department of Labor’s regulations on Retirement Savings Plans offering participant-directed investment accounts.
Many defined contribution plans and virtually all 401(k) plans allow participants to direct the investments in their respective accounts. The report focuses on the Department of Labor ERIS Section 404(c) regulations which specify requirements for the structure and administration of participant-directed plans.
The Department of Labor’s final regulations und Section 404(c) address the key question of who is responsible (and potentially liable) for the investment performance of participant-directed investments. If a plan sponsor is to avoid potential liability for investment losses or substandard investment performance due to an account’s imprudent investment by a participant, compliance with the proposed regulations appears to be mandatory.
The body of this work is an interpretation of the final Section 404(c) regulations, a study which reflects the opinion of the authors and which should not be construed as providing either legal or investment advice. Further, the authors strongly recommend that plan sponsors and fiduciaries consult with their legal and investment counsel as to the specific effect the regulations may have on their firm’s qualified retirement savings plans.