ERISA Section 404(c)… A License to Lie…
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that establishes the standards for private pension plans, such as 401(k)s and 403(b)s. Section 404(c) is a specific part of this law that permits employees to direct the investment of their own retirement accounts. The section follows a prudent standard of care requirement and offers “safe harbor” for employers or other plan sponsors who allow their employees to direct the investments of their accounts.
To qualify for relief under ERISA Section 404(c), the plan fiduciary must provide participants the chance to:
- Choose, from a broad range of investments, how their accounts will be invested, which allows participants to diversify their investments.
- Exercise control over assets in their individual accounts.
What is the “prudent” standard for ERISA?
The responsible fiduciary must monitor options provided to employees to ensure they continue to be a “prudent” choice for the plan. The legal requirement for prudence as defined in ERISA Section 404(a)(1)(B) is for a fiduciary to discharge his or her duties with:
“the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”
Above information was sourced from http://employment.findlaw.com/wages-and-benefits/erisa-section-404c-faqs-.html
ERISA provides that the investment of plan assets is a fiduciary act governed by fiduciary standards, which require plan fiduciaries to act prudently and solely in the interest of the plan’s participants and beneficiaries. The problem with this law is that it simply does not work…. On October 14, 2010, it was made even worse with an amendment that states that plan administrators will not be liable for the completeness and accuracy of information used to satisfy the disclosure requirements when the plan administrator reasonably and in good faith relies on information received from or provided by a plan service provider or the issuer of a designated investment alternative. This ruling applies to participant-directed individual account plans only (e.g., 401(k) plans). They do not apply to individual retirement accounts or individual retirement annuities, simplified employee pension plans, or “SIMPLE” retirement account plans.
In case you didn’t thoroughly read the foregoing, let’s put it into terms we all understand. If your employer, aka plan administrator and Fiduciary, relies in good faith on information provided by a plan service provider, aka an insurance company like Principal Life Insurance Company, that employer will not be liable for the completeness and accuracy of information they receive from said insurance company!
Ok, to begin, the insurance company is NOT a fiduciary, and they they will “occasionally” lie (like all the time) to your employer. If said lies are relied upon by your plan administrator…. that same plan administrator is not liable.. even as a Fiduciary… if you relied upon that advice/information. Of course, this “exception” to their fiduciary liability applies ONLY to 401(k) plans (go figure!).
Now tell me this…. who, sitting behind a desk at the Department of Labor, would one day decide on his own, to permit lies and deceptions to take place within the 401(k) industry, and decide NOT to take action against said lairs and deceptors?? How much money had to exchange hands between some crooked insurance company and some crooked lawyer inside the DOL for this decision to be made? Ok, if you have an IRA, no lies allowed. If you have a 403(b), no lies are allowed. If you have ANY other type of retirement plan, NO LIES ARE ALLOWED! But, if you have a 401(k) plan, companies like Principal Life Insurance company can lie all day to your plan administrator and get by with it. In fact, are the lies are so prolific that the Department of Labor was required to make a law to protect the fiduciary from those same lies? We have always been told the rules are made to protect the investor… do you still believe this nonsense??
Folks, this IS as bad as it can get, and this collusion between the DOL and the 401(k) industry providers existed long before the financial crisis in 2008. If you really think you have completely recovered from your losses of 2008 and 2009,do the math. If you add up the money you sank into your 401(k) plan, and the balance you think you have now, you are mistaken, because your plan provider is still telling lies, and will continue to do so until Hell freezes over!
Look at the true numbers. Log into BrightScope.com and look at your retirement plan… see what they tell you about your plan and where it “fits” in the earnings side of the ledger. If you have Principal Life, chances are at retirement, you will be short right at one quarter of a million dollars when you decide to retire…. this is true information, not the lies the industry “leaders” are telling you. Imagine how widespread the lies and misleading statements are that the DOL has to pass a law to protect the lies!
The next time you log into your retirement account with Principal Life, make some notes:
- First, find the section, if it actually exists, that shows to the penny, the total dollars you have personally contributed to your 401(k) plan.
- Next, find, to the penny, the value your plan has on the day you logged in… the difference is supposedly the money you have earned.
- Wait a minute…. assuming your employer has contributed to the plan, somewhere there should be that amount listed as well. and while you are at it, there should be an amount shown for fees, both incurred and hidden fees.
- If you think you have made money, remember the separate accounts like target date funds, are actually “Fund of Funds,” so there are fees attached to the proprietary mutuals owned by your insurance company that are not included in the fee schedule.
- Keep in mind there are a multiplicity of “rates” attached to each separate account, so you need to know which rate applies in your case to each separate account.
- While we are at it, you will also have “unallocated” funds, “temporarily” stored in the insurance company general account. I call it a “rainy day” Fund…. actually, in the case of Principal Life, the “rainy day” fund consisted a decade ago of billions of your dollars, sitting unaccounted for by Principal. Since this money is “unallocated,” it is not factored into your retirement account when you ask to close the account. Maintaining this “Unallocated Fund” from year to year is in direct violation of IRS rules governing Unallocated Funds, but remember, Principal can lie to their clients… it’s the law!!
If you really think you are actually saving for your retirement, then be all means keep throwing money into the fire…. I cannot offer an alternative. Until our government draws the line on these lies and corruption within the industry, there will be no solution. And the Fiduciary Standard is simply a smoke screen to make you feel good about saving more money. Once the government makes it mandatory for you to”invest” in such a plan, it will simply be another avenue for our political leaders to “earn” more donations from the industry lobbyists to do their bidding.