ERISA

section 404(c)
checklist

Putnam Retirement Services

This ERISA section 404(c) checklist provides a handy tool for you to
compare your plan against best practices described in the Fiduciary
Planning Guide. Completing the checklist may highlight areas where
additional steps are needed to improve ERISA section 404(c) compliance.

ERISA section 404(c) relieves the plan sponsor and other fiduciaries from liability for losses resulting from
participants’ direction of their investments. This protection applies only to participant-directed investments,
and not to investments required under the plan or directed by the plan sponsor. To take advantage of ERISA
section 404(c), the plan must satisfy three categories of requirements:

Investment menu Plan design and Information and

requirements administrative requirements disclosure requirements

INVESTMENT MENU REQUIREMENTS

ERISA section 404(c) generally requires a plan to offer
a “broad range of investment alternatives.”
This is satisfied by meeting the following specific
requirements:
The investments available under the plan are sufficient
to provide the participant a chance to materially affect
(i) the potential returns in his or her account and
(ii) the degree of risk to which it is subject
The plan offers at least three investment alternatives that:
Are diversified
Comments: It is generally understood that this requirement
is satisfied by having the investment menu include a diversi-
fied fund from each of the following asset classes: equity,
fixed income, and capital preservation.
The Pension Protection Act of 2006 provides a major set of
rules that provide guidance on how plan sponsors may be
shielded from fiduciary liability if they invest participant
assets in a qualified default investment alternative (QDIA),
which includes life-cycle or targeted-retirement-date
funds; risk-appropriate balanced funds or portfolios; or
managed accounts.

Have materially different risk and return characteristics
Enable the participant to achieve a portfolio with aggre-
gate risk and return characteristics at any point within the
range appropriate for the participant
When combined with the others, each tends to minimize
risk to the portfolio through diversification
Participants are given the opportunity to diversify their
accounts sufficiently to avoid large losses
Comment: In practice, this means participants must be
able to allocate their accounts among the three investment
alternatives in increments that let them diversify their
accounts appropriately.

PLAN DESIGN AND ADMINISTRATIVE REQUIREMENTS

Under the terms of the plan, participants are given the
opportunity to give investment instructions to an identified
fiduciary who is obligated to follow those instructions
(except in certain defined circumstances, such as prohibited
transactions, etc.)
If participants do not give investment instructions in
writing, they must be given an opportunity to receive
a written confirmation of their instructions
Participants have the ability to change investments with
a frequency appropriate in light of the volatility of the
investments
Comments: The rules do impose a minimum on the
frequency of changes among the three core investment
options, requiring at least quarterly changes. However,
the general rule, basing frequency of changes on volatility,
in many circumstances will require the ability to make more

This checklist is provided for informational purposes only. It is not intended to provide authoritative guidance or
legal advice. You should consult your own attorney or other advisor for guidance on your particular situation.
ERISA section 404(c) checklist
frequent changes. Some take the view, for example, that for
a single — rather than a diversified — investment such as
company stock, daily changes are required.
A plan that permits daily changes for all investments clearly
satisfies this rule.
If company stock is offered, the following
requirements must be satisfied:
The company stock is publicly traded
The company stock is traded with sufficient frequency and
volume so participants’ instructions to buy or sell can be
executed promptly
INFORMATION AND DISCLOSURE REQUIREMENTS
There are two categories of information and disclosures:
(1) items required to be provided to participants automati-
cally in advance of investment and (2) items required to
be provided only on participant request.
Information and disclosures required to be
provided automatically:
A statement that the plan is intended to be an ERISA 404(c)
plan, with an explanation that this will relieve plan fiduci-
aries of liability for losses resulting from the participant’s
investment directions. This can be provided in the summary
plan description
A description of each investment alternative under the
plan, including (1) a general description of investment
objectives and risk/return characteristics and (2) informa-
tion about the type and diversification of assets in the
investment alternative
The identity of any ERISA investment managers
A description of the rights and procedures for directing
investments in the plan, along with any limitation on
those rights
A description of any transaction fees or expenses charged
to the participant for purchases or sales (e.g., commissions
or sales loads)
The identity and contact information for the fiduciary
responsible for providing participants with section 404(c)
information “on request”
If company stock is an investment fund, a description
of the procedures established to protect the confidentiality
of information regarding participants’ purchase, sale,
This checklist is provided for informational purposes only. It is not intended to provide authoritative guidance or legal
advice. You should consult your own attorney or other advisor for guidance on your particular situation.
Participants are provided information given to
shareholders of company stock generally
Voting, tendering, and similar rights are passed
through to participants
The plan designates a fiduciary to ensure information
regarding the purchase, sale, and holding of company
stock, and the exercise of voting, tendering, and similar
rights is maintained with procedures to keep it confidential
An independent fiduciary is appointed to address any
situations where the fiduciary responsible for confiden-
tiality determines there is a potential for undue influence
on a participant’s decision to vote or tender shares
holding, voting, or tendering of company stock, as
well contact information for the fiduciary responsible for
monitoring those procedures
For mutual funds in which the participant invests for the first
time, a copy of the prospectus provided to the plan (may be
provided before or immediately after the investment)
If pass-through voting or similar rights are provided
to participants, any materials provided to the plan
regarding those rights
Information and disclosures required
to be provided only on request:
A description of the annual operating expenses of each
investment alternative (e.g., investment management fees),
which reduce the rate of return to participants, and the
aggregate amount of these expenses, expressed as a
percentage of average net assets
Copies of any prospectuses, financial statements, reports,
and other materials about the investment alternative
provided to the plan
If the fund is not a mutual fund (e.g., a group trust or
separate account), a list of assets making up the invest-
ment alternative’s portfolio (additional specific information
is required for fixed-rate instruments issued by a bank or
insurance company)
Information concerning the value of shares or units in
the investment alternatives, as well as past and current
investment performance
Information concerning the value of shares or units held in
a participant’s individual account
ERISA section 404(c) checklist
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help you determine the right investments for you or your individual needs.
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benefit from the counsel of a financial advisor who can offer
timely information and expertise. Investors should carefully consider the investment objective,
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