Demonstrating 404(c) Compliance: Essential Documentation for Your Plan

When it comes to establishing that your retirement plan meets the standards of ERISA Section 404(c), thorough documentation is your best defense. Section 404(c) of ERISA shields plan fiduciaries from liability for investment losses if participants are given control over their investment choices, provided they receive all the necessary information to make informed decisions [1]. However, merely offering this control isn't enough; you must also prove it with the right documentation.

"Even when participants have full control of investment decisions, plan fiduciaries could still be responsible for participant investment choices. Fortunately, plan fiduciaries do have an option that offers certain protections." [1]

Key Documentation Elements

1. Investment Option Disclosures: One of the foundational requirements for 404(c) compliance is ensuring participants have a broad range of investment options. Documenting these options is crucial [2]. This includes a detailed record of all the investment choices available to participants, complete with descriptions of their objectives, risks, and potential returns. It's essential to retain these records every time options are updated or new ones are added.
2. Fee and Expense Disclosures: Participants must be aware of any fees or expenses associated with their investments. This transparency is critical under 404(c) [3]. You should keep a record of all fee disclosures provided to participants, including administrative, investment management, and transaction fees. These disclosures should be updated regularly and any changes communicated promptly to participants.
3. Participant Communications: Evidence that participants were informed about their ability to direct investments is a cornerstone of 404(c) compliance [4]. This means keeping copies of all relevant communications, such as emails, newsletters, and portal messages, that explain participants' rights and responsibilities in managing their investments. Any guidance on how to access and use the plan's investment options should also be documented.
4. Educational Materials: To make informed decisions, participants need access to educational resources about investing and the specific options within their plan. Keeping copies of any educational materials, including webinars, workshops, and brochures, is essential [5]. These materials help demonstrate that participants were not just given options, but also the knowledge needed to understand them.
5. Summary Plan Descriptions (SPDs) and Amendments: The Summary Plan Description is the primary document that outlines the features of the retirement plan, including participant rights and responsibilities. Maintaining up-to-date SPDs and records of any amendments is critical for 404(c) compliance [3]. These documents provide a clear picture of the plan's provisions and how participants are informed of their ability to manage their investments.

Regular Audits and Updates

Ensuring compliance is not a one-time task. Regular audits of your documentation are necessary to confirm that all required information is up to date and that participants are continuously informed about their options [2]. Whenever there's a change to the investment lineup, fees, or any other aspect of the plan, prompt updates to your documentation are crucial. 

"Complete this checklist to indicate compliance with ERISA 404(a) and, if applicable, 404(c) guidelines." [2]

Why This Matters

Without proper documentation, it's nearly impossible to prove 404(c) compliance, which could expose fiduciaries to liability if participants experience losses. The key to safeguarding your plan and fulfilling your fiduciary duties lies in diligent record-keeping and transparent communication [5]. By systematically documenting every aspect of participant interaction with the plan, you create a solid foundation that not only demonstrates compliance but also fosters trust and confidence among participants.

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References:

[1] Fidelity Investments. (n.d.). Compliance with ERISA Section 404(c). Retrieved from https://sponsor.fidelity.com/pspublic/pca/psw/public/library/manageplans/compliance_erisa_404c.html 

 [2] Securities and Exchange Commission. (n.d.). ERISA §404(a) & §404(c) Compliance Checklist. Retrieved from https://www.sec.gov/comments/4-606/4606-232.pdf 

 [3] Employee Fiduciary, LLC. (n.d.). ERISA Section 404(c) Compliance. Retrieved from https://www.employeefiduciary.com/hubfs/documents/404c-checklist.pdf 

 [4] Ascensus. (n.d.). ERISA Section 404(c) Employer Guidelines. Retrieved from https://dcs.ascensus.com/EmployerDirect/document/download/erisa-404c-employer-guidelines.pdf 

 [5] Voya Financial. (2019). Sample 404(c) Compliance Checklist. Retrieved from https://www.voya.com/sites/www/files/2020-11/404%28c%29%20Sample%20Checklist%202019.pdf