July 11, 1991
TO: PENSION MEMBERS NO. 24-91
INVESTMENT ADVISER MEMBERS NO. 29-91
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 29-91
RE: INSTITUTE TESTIFIES IN FAVOR OF ERISA 404(c) REGULATION
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The Institute presented the opening testimony on July 11,
1991 regarding the Department of Labor's re-proposed regulation
concerning participant-directed individual account plans under
ERISA section 404(c). As we previously informed you, ERISA
section 404(c) provides that, when a participant of an employee
benefit plan exercises control over the investment of assets in
his individual account, the fidiciaries of the plan are not
liable for plan losses which result from the participant's
exercise of control. (See Institute Memorandum to Pension
Members No. 11-91, Investment Adviser Members No. 11-91 and
Investment Adviser Associate Members No. 12-91, dated March 13,
1991.) The Institute expressed its support for the regulation
and urged its prompt adoption in final form.
The Institute noted the compatibility between participant-
directed plans and mutual funds. The exchange feature offered by
families of funds enables participants to exercise control over
their individual accounts in the manner intended by Congress when
it enacted section 404(c).
The Institute also supported the requirement in the
proposed regulation that a fiduciary independent of the fund
manager is required to select the manager of any look-through
investment vehicles offered to ERISA section 404(c) plan
participants. The regulation contains an exception to this
requirement for in-house retirement plans of financial
institutions. Thus, employers (other than financial
institutions) who internally manage their retirement plan pools
without using outside investment advisers or mutual funds should
not be entitled to ERISA 404(c) protections unless an independent
fiduciary selects the internally managed pools.
Finally, the Institute questioned the characterization of
GICs as "look-through investment vehicles" because they do not
reflect solely the investment returns of any single pool of
investments. The Institute recommended that GICs be subject to
additional disclosure requirements regarding the issuer's
financial integrity in the event the final regulation treats GICs
as "look-through investment vehicles."
A copy of the Institute's testimony is attached. We will
keep you informed of developments.
W. Richard Mason
Assistant Counsel - Pension
Attachment