What Is 404c Safe Harbor?

Employers can opt for a 404c 401(k) plan to give employees greater power to choose how their retirement savings are being invested, while limiting their own liability for losses sustained by participants. Plan sponsors must satisfy three requirements for the 404c rule to apply:

• Employers must offer a broad investment menu with a range of risk and return potentials.
• Employers must have a user-friendly participant portal for easy viewing and control of investments.
• Employers must provide timely notices to keep plan participants informed of their options.

It is a common misconception that setting up a 404c plan automatically exempts plan sponsors from any and all liability for the 401(k)’s losses.

Working closely with a financial advisor and third-party administrator is the key to satisfying all the necessary requirements for maximum protection under 404c.

Here are a few extra tips to consider:

• Create a living document. You can’t just “set it and forget it.” Many employers feel that they can just come up with a few core options, and their work is done. A diligent plan administrator will recommend that you take the time to develop an Investment Policy Statement, which shows why investments were selected and on what criteria they are either retained or replaced.
• Limit investment expenses. Another major problem is that employers get bogged down by investments with high fees that drastically reduce what participants can save for retirement. It’s important to have the freedom to select a provider who doesn’t gouge revenues with high fees and commissions. Working with a third-party administrator like Ubiquity with a low, flat, transparent pricing structure and no AUM fees is the ideal scenario.
• Go above and beyond in your educational support.  While the Department of Labor doesn’t require plan sponsors to provide specific investment advice in order to be a 404c plan, they do encourage sponsors to offer investment education. Online portals and regular disclosure notices work best.
• Document everything. The best way to ensure full 404c protection is to maintain an IPS and take minutes for all investment decisions made for the plan. Keep records of investment education materials, records of all participant enrollment meetings, and attendance at important meetings.

As a 401(k) plan administrator, Ubiquity is fully committed to helping sponsors limit their liability while offering employees maximum choice. Since 1999, we’ve developed a solid reputation for maintaining low, fair, flat administrative fees.

All Ubiquity plan participants enjoy access to a user-friendly education portal, among other benefits. Contact us for details on how to set up a 404c compliant 401(k) that works for your small business.