How to Become an Expert on 404c Safe Harbor For Your Plan Sponsor Clients

There are number of requirements under 404(c) such as Investment Menu Requirements, Control Requirements & Information Disclosures. Information disclosures is a very complex topic and we will leave that discussion for another time.

Control requirements section essentially that that the participants must have actual control over trading decisions, and plan sponsor follows their instructions. In this review we will focus on Investment Menu Requirements, since they require the most knowledge and understanding of the financial markets.

Investment Menu

Under ERISA a 401(k) plan is required to offer a ‘broad range of investment alternatives'. They must satisfy the following criteria:

  • There are at least three alternatives that satisfy the following criteria:
    1. Each alternative is itself a diversified investment
    2. Enable the participant to achieve any level of risk & return that is appropriate for him or her
    3. When combined with others, each tends to minimize risk of the overall portfolio and minimize risk of large losses
How do you practically ensure that your investment menu satisfies these criteria?

Read more: How to Become an Expert on 404c Safe Harbor For Your Plan Sponsor Clients -
 
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