Employee Retirement Income Security Act Section 404(c) — section 404(c) of the Employee Retirement Income Security Act (ERISA) protects
a fiduciary against liability for investment losses arising from allocation
choices in employee-directed retirement plans (e.g., 401(k) plans) if certain
requirements are met. These requirements include the following: (1) Plan
participants must be able to allocate funds among a minimum of three investment
choices with substantially different risk and return characteristics; (2) each
core investment alternative must be sufficiently diversified; (3) plan
participants must have the ability to transfer from or among the investment
alternatives at least once every 3 months; (4) participants must be able to
transfer from or among the investment alternatives with a frequency that is
appropriate to each fund's risk level; and (5) participants must receive
sufficient information to make informed decisions about the plan's
investment options. However, simply providing employees with options that
satisfy Section 404(c) requirements does not safeguard a fiduciary against all
lawsuits. Thus, fiduciaries can still be held liable for (1) selecting funds
imprudently, (2) failing to monitor the funds for continuing appropriateness or
reasonableness of fees, or (3) engaging in a prohibited transaction.