The bear market has caused large losses for participants in 401(k) plans.  These losses have highlighted the need for fiduciaries (those exercising discretionary control over the plan) to act prudently as required by ERISA Section 404(a) and to obtain the protections afforded by ERISA Section 404(c), or risk personal responsibility for participant investment losses.

Under ERISA Section 404(a), the plan’s investment fiduciaries must prudently select and monitor the plan’s investment options to insure their compliance with the plan’s investment policy and the diversification tenants of Modern Portfolio Theory.  If the fiduciaries do not have this expertise, they must get it from a Registered Investment Advisor or other qualified investment advisor.

ERISA Section 404(c) allows fiduciaries to transfer legal responsibility for losses resulting from participant investment decisions if they satisfy a number of conditions.

If a participant directed 401(k) plan does not comply with the provisions of 404(c), the plan fiduciaries are responsible for the prudence of the participant's investment decision, even when the participant elected and executed the investment transaction.

Kerns Capital Management will advise you as a co-fiduciary in the prudent exercise or your fiduciary duties and 404(c) compliance. Our services include:

• Prepare 404(c) notice to plan participants
• Prepare Investment Policy Statement (“Investment Policy”)
• Select and monitor the mutual funds or similar pooled investments to be offered in plan
• Analyze funds as a group to assure plan compliance with Modern Portfolio Theory as required by the Department of Labor
• Prepare periodic Advisory Reports that compare consistency of fund management and performance to guidelines set forth in Investment Policy and make recommendations
• Periodic meetings with client to discuss Advisory Reports
• Prepare monthly Investment Performance Summary for distribution to plan participants
• Provide quarterly employee educational newsletter for distribution to plan participants
• Prepare and maintain an Investment Committee Notebook to document compliance
• Access to www.401k-investment-advice.com for investment advice unique to the plan’s fund options

“If a plan does not qualify as a 404(c) [plan], the fiduciaries retain liability for all investment decision made, including decision by the Plan participants.” Tittle v. Enron Corp., 284 F.Supp.2d 511, 578 (S.D. Texas 2003).

Are you a plan fiduciary?  If so, Contact Us for more information.

See our Five Point Fiduciary Checkup