Beware of Investment Advice in Market Turmoil
At a time when the financial markets are obviously seething, plan participants can tend to be desperate for guidance about whether or not to move their money or change their retirement portfolio. They may turn to the plan sponsor for guidance about how to better position their retirement plan allocations. Plan sponsors should try to avoid giving such guidance to remain protected against fiduciary liability claims.
ERISA Section 404(c) provides an exception to fiduciary liability for plan sponsors involved in participant-directed account plans. It specifically provides that when a participant exercises control over the assets in his or her account, no person who otherwise is a fiduciary shall be liable for any loss, or by reason of any breach, that results from such participant's exercise of control. In short, a plan fiduciary would not be liable for actions taken by the participant in a participant directed account if the participant took them on their own.
Rendering investment advice can give rise to a claim of fiduciary status if it is determined that it influences the decision of the participant to make a specific investment or elect a particular investment option. 29 CFR 2509.96-1 sets forth the distinctions between "rendering investment advice" and "investment education." It is important to recognize that "education" is simply explaining the options and impact of each choice. "Advice" is suggesting which option is preferred for the individual participant and can give rise to claim of fiduciary duty as t the person who renders the advice, including the plan sponsor.
In this market, it would probably not be a bad idea to increase "education" to participants and invite the plan professionals in to discuss the plan investment options with participants. But I would caution plan sponsors to not engage in direct discussions about how participants could better manage their portfolios as this would likely be "investment advice" that takes them out of the 404(c) protections.
