Section 404a-5 and Section 404(c)

Q: What disclosures are required for 404(c) protection but are not required to be disclosed under the 404a-5 participant disclosure regulation?

A: Plans need to disclose to participants that the plan intends to comply with the Employee Retirement Income Security Act of 1974 (ERISA) Section 404(c) and that plan fiduciaries may be relieved of liability for any losses resulting from a participant's investment decisions. This disclosure is not required by the 404a-5 participant disclosure regulation. To the extent a plan offers company stock as an investment option, there are additional disclosures that must be made under the Section 404(c) regulation that are not required under the 404a-5 participant disclosure regulation (see Section 404(c) protection for employer stock investment options on previous section).

Q: Is 404(c) mandatory?

A: No. Compliance with Section 404(c) is optional. A plan must comply with the Section 404a-5 Participant Disclosure Regulation but does not have to comply with the Section 404(c) regulation.

Q: If the plan complies with the 404a-5 participant disclosure regulation but does not provide the additional disclosures that are only required by the Section 404(c) regulation, is there a breach of fiduciary duty?

A: Failure to comply with the mandatory 404a-5 participant disclosure regulation is potentially a breach of fiduciary duty. However, as adherence to Section 404(c) regulation is optional, the consequence of not meeting all its requirements is that plan fiduciaries may not enjoy the protection afforded by Section 404(c).

Q: Is a prospectus required to be provided upon an initial investment into a mutual fund in order to obtain 404(c) protection?

A: No. The "confirming prospectus" requirement was removed from the Section 404(c) regulation. However, the Section 404a-5 participant disclosure regulation does require a prospectus (and similar documents provided by nonregistered options) to be provided upon participant request.

Q: Are investment descriptions, including objective and risk, required to be proactively provided to participants for each designated investment option in order to obtain 404(c) protection?

A: No. The "fund description" requirement was removed from the Section 404(c) regulation. However, the Section 404a-5 participant disclosure regulation does require “fund descriptions” to be made available on a Web site. In addition, this information would need to be provided on paper upon participant request.


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Fidelity does not provide legal advice, and the information provided herein is general in nature and should not be considered legal advice. Consult an attorney regarding your plan’s specific legal situation.

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