404(c) Compliance Checklist

The best protection for plan fiduciaries is to make sure employees are well invested by providing quality education and investment monitoring.  If employees are invested appropriately the “prudent man” rule of ERISA Section 404(a) has been satisfied and the 404(c) protection is not needed.  While plan fiduciaries should always strive to comply with the “prudent man” rule, the constantly moving parts involved in a corporate retirement plan make the added protection of 404(c) compliance an integral risk mitigation tool for responsible fiduciaries. 

Checklist
While 404(c) compliance is a detailed process and each plan has its own nuances that need to be addressed, satisfying the following requirements will help to assure your plan’s 404(c) compliance.

  1. Have you communicated to your employees that the plan intends to comply with 404(c)?
  2. Does this communication explain that the plan fiduciaries may be relieved of liabilities for investment losses based on the plan’s 404(c) compliance?
  3. Does the plan offer sufficient investment diversity?
  4. Have you provided a general description of the objectives and risk characteristics of the plan’s investment alternatives?
  5. Are plan communications written in a manner that participants can clearly understand?
  6. Does the plan allow participants to change investment instructions with a frequency which is appropriate in light of market volatility? 
  7. Does the plan have a written Investment Policy Statement (IPS)?
  8. Does the plan’s IPS have a formal process for evaluating investment managers' adherence to fund objectives, including a written evaluation report?
  9. Does the IPS include the plan’s intent to comply with 404(c)?
  10. Have you disclosed the plan fiduciaries responsible for providing investment information?
  11. Has the plan's annual Summary Plan Description been checked against specific requirements of 404(c)?
  12. Do you maintain a file containing copies of all communications with plan participants, as well as the date, time and details of participant meetings?
  13. Have the plan fees been disclosed and clearly communicated to the employees?  Have participants been given a description of the annual operating expenses of each investment alternative?
  14. Have you given specific information regarding employer securities, along with any materials relating to the exercise of voting, tender or similar rights?
  15. Does the plan offer investment information and education without crossing the line into participant level investment advice?
  16. If calculators are used in investor education, are they based on generally accepted investment theories? Do they clearly disclose the "what if" assumptions on which they are based, such as retirement age, income levels, inflation rates, rates of return, and all plan investment alternatives?
  17. Have restrictions on transferring to or from a particular investment choice been clearly communicated to participants?
  18. Can a participant obtain copies of plan prospectuses, financial statements and reports upon request?
  19. Are plan fiduciaries aware of the limits of 404(c) protection and their duties to the plan regardless of 404(c) compliance, including prudent selection and monitoring of investment choices?
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