How 404c Compliance Shields Your Business from Retirement Plan Risks

Managing a retirement plan is a significant responsibility for any company, especially when selecting the fund options employees can invest in. Under ERISA regulations, employers must ensure these options suit diversity, cost, and performance. Failure to meet these standards can expose companies to substantial liability. That’s where 404c compliance comes in. 

What Is 404c compliance? 

The 404c designation, implemented by ERISA, protects companies when making investment decisions for their retirement plans. A 404c-compliant plan must meet specific requirements, including: 

• Offering a diverse range of investment options 
• Structuring the plan design to align with employee needs 
• Providing employees with clear, comprehensive information about investment choices 

When companies meet these requirements, they are shielded from liability when employees make investment decisions. 

The risks of non-compliance 

Failing to meet 404c compliance requirements can result in significant financial risks. Companies may be required to reimburse employees for losses or missed earnings caused by insufficient fund options or inadequate educational materials. 

Example Scenario: 
Employees have $50,000 in their retirement accounts and plan to retire in 40 years. Suppose the company fails to provide adequate educational materials about the risks and characteristics of each investment option. In that case, the employee might choose to remain in a Vanguard Money Market Fund, prioritizing protection over growth. Without additional contributions, their account might only grow to $75,000 by retirement. 

Had they understood the long-term growth potential of an age-appropriate Vanguard Target Date Fund, they could retire with an additional $1.2 million. Without 404c compliance, the company could be liable for this $1.2 million missed earnings. 

Why 404c compliance matters 

Being 404c compliant protects your company from potential lawsuits and ensures that your employees have the tools and information they need to maximize their retirement savings. It’s a proactive measure that benefits everyone involved. 

How OpenPlan can help your business achieve 404c compliance 

Compliance with 404c regulations is essential for protecting your company and ensuring employees can access high-quality, diverse investment options. With OpenPlan’s expertise, your business can stay compliant, reduce liability, and help employees achieve their long-term financial goals. 

The information contained in this document is provided for informational purposes only and should not be construed as individualized advice. For individualized advice, please consult with your adviser.