- 1 -
May 1, 1991
TO: PENSION COMMITTEE NO. 11-91
RE: DRAFT INSTITUTE COMMENT ON PROPOSED ERISA 404(c) REGULATION
__________________________________________________________
Attached is a draft copy of the Institute's comments
regarding the Department of Labor's proposed regulation regarding
participant-directed individual account plans under ERISA section
404(c). (See Institute Memorandum to Pension Members No. 8-91,
dated March 13, 1991.)
The draft comment letter expresses the Institute's support
for the proposed regulation, discusses the Institute's
understanding of the regulation's provisions, and contains
several comments regarding the regulation and participant-
directed individual account plans, in general. Pursuant to the
recommendations of the ERISA section 404(c) subcommitte which met
on April 19, 1991, the Institute intends to comment that the
final regulation, or the preamble thereto, should clarify the
following matters:
(1) Since GICs differ from other look-through
investment vehicles because of their non-
participatory nature, GICs should not be treated
like other look-through vehicles for purposes of
disclosure of the financial condition of the
issuers;
(2) Employers retain ongoing fiduciary obligations to
monitor the suitability of 404(c) plan investments,
add additional options and review the frequency of
transfer among investment options;
(3) Employer stock cannot be one of the three basic
investment options under a 404(c) plan;
(4) ERISA section 404(c) protection is available to
participant-directed account plans which offer
employer stock even if employees must obtain pre-
clearance for purchases of employer stock because
of securities law requirements; and
- 2 -
(5) Offering employer stock under a 404(c) plan may
require transferability more frequently than
quarterly to and from the least volatile option
under the plan.
As we discussed at the Pension Committee meeting last week,
comment letters in support of the proposed regulation may help
expedite the release of the final regulation. Therefore, it is
important for fund organizations to individually express their
support for the Department of Labor's proposal during the comment
period.
Written comments must be received by the Department of
Labor on or before May 13, 1991. Three copies should be
submitted to the Office of Regulations and Interpretations,
Pension and Welfare Benefits Administration, 200 Constitution
Avenue, NW, Room N5669, U.S. Department of Labor, Washington, DC
20210 and marked, "Attention: Section 404(c) Regulation".
If you have any questions regarding the enclosed, please
call me at 202/955-3516.
W. Richard Mason
Assistant Counsel - Pension
Attachment