What is 404(c)?
What is 404(c)?
Under the Employee Retirement Income Security Act of 1974 (ERISA), plan sponsors are responsible for all investment decisions, including those made by the participants in participant-directed plans, unless the plan is an “ERISA Section 404(c) plan.” Section 404(c) of ERISA provides that, if a plan permits the participants to exercise control over the assets in their accounts and they actually do so, the plan sponsors are not liable for any loss that results from such exercise of control so long as the plan complies with the requirements of the Department of Labor (DOL) Regulation under Section 404(c)1. That Regulation describes the circumstances under which a participant or beneficiary is considered to have exercised independent control over the assets in his or her account as contemplated by Section 404(c).2
How is 404(c) Linked With 404A-5?
Since 404(c) protection itself is optional, the prior disclosures under 404(c) were optional. However, the DOL wanted the participant disclosures to be mandatory for all participant directed plans. Therefore, they put the recent disclosures under their regulations for ERISA 404(a) instead of 404(c), and simply cross-referenced the new rules, saying that 404(c) compliance now includes the mandatory 404a-5 requirements.3
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For Plan Sponsor Use Only – Not for Use with Participants or the General Public
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.