ERISA Section 404(c) and Investment Advice: What Is an Employer or Plan Sponsor to Do?

When Enron collapsed, many of its employees were not only out of a job, but those who had invested a portion of their retirement savings in Enron stock watched those funds dissipate. This unfortunate event engendered a renewed interest in ERISA section 404(c). Under ERISA section 404(c), as long as employee-participants are in control of their 401(k) investment decisions, and the plan sponsor is prudent in selecting fund options, the plan sponsor bears no responsibility for investment losses incurred in participants' accounts. Although studies show that many people cannot make truly educated investment choices, plan sponsors currently cannot offer investment advice without themselves becoming liable for the negative consequences of that advice. In this paper, I review ERISA's statutory and regulatory framework and outline alternatives to the investment advice dilemma, some of which would require plan sponsors to bear fiduciary responsibility for the investment selections of 401(k) participants.