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November 13, 1990
TO: PENSION COMMITTEE NO. 27-90
RE: ICI GIVES DOL RECOMMENDATIONS REGARDING 404(c) REGULATION
__________________________________________________________
As you recall, the Department of Labor is considering re-
proposing its regulation under ERISA section 404(c) in a form
that will not provide employers with any certainty that their
participant-directed individual account plans satisfy the
requirements of section 404(c). (See Institute Memorandum to
Pension Committee No. 25-90, dated October 22, 1990.) The re-
proposed regulation would, instead, provide a foundation for the
structure of a 404(c) plan which could evolve with pension
industry standards and technology.
In response to Assistant Secretary Ball's request for
suggestions regarding the manner by which the re-proposed
regulation should describe the "broad range of investment
options" which must be available under a 404(c) plan, the
Institute submitted the attached letter containing various
recommendations. Primarily, the Institute recommended that the
re-proposed regulation reflect the axiom that ERISA section
404(c) does not provide participants with protections which are
less valuable than those provided to them by virtue of the
general fiduciary principles of ERISA section 404(a). Therefore,
with regard to the "broad range of investment options" which
fiduciaries must make available under a 404(c) plan (and with
regard to the frequency of transfer which must be available to
participants with respect to those options), the Institute
recommended that the re-proposed regulation specifically state
that 404(c) will not apply unless an ERISA plan fiduciary could
prudently carry out his investment duties under ERISA section
404(a) if the fiduciary were limited to the options (and transfer
opportunities) available to 404(c) plan participants.
The Institute recommended that the re-proposed regulation
emphasize the fiduciary duties which continue to apply in the
context of a 404(c) plan. These duties would require the
fiduciary to monitor not only investment option performance but
the overall design of the 404(c) plan: This may involve adding
investment options, increasing frequency of transfer and
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improving communications between the investment fund sponsors and
participants. The Institute stressed the importance of adequate
disclosure in terms of information about investment option
policies, risks and rewards in order for participants to exercise
meaningful control over their ERISA section 404(c) plan accounts.
We will keep you informed of further developments.
W. Richard Mason
Assistant General Counsel
Attachment