Suitability of 401(k) Investments for A Particular Workforce (Posted February 15, 2001) Technical Tip 6: The following question and answer were from the DOL Q&A Session at the 2000 ASPPA Annual Conference: DOL officials have suggested that fiduciaries of participant-directed plans (e.g., 401(k) plans) must consider the nature of the particular employer’s workforce in selecting the investment alternatives to be offered to the participants. Would you comment on that? Are some of the specific issues: the complexity of investment options; the number of options; volatility; diversification? DOL Response: There are no constraints currently under the law as to whether self directed plan investments are appropriate for a particular work force. Given the defensive nature of Section 404(c) compliance, the factors mentioned in the question such as number of funds, volatility and diversification, should be considered by the fiduciary in selecting the available investment options under the plan. In structuring a 404(c) program, the plan sponsor or fiduciary should take into account the potential problems of exposing an unsophisticated work force to investment choices involving complexity and volatility. Caveat: The answer was drafted by Fred Reish and Brad Huss, the program moderators, based on their understandings of discussions with four senior officials of the Pension and Welfare Benefits Administration (PWBA) of the U.S. DOL. As a result, it does not represent a formal or binding position statement by the PWBA. Comment by the RL&R ERISA Attorneys: Based on the DOL’s response, companies that sponsor 401(k) plans--and the plan committee members--need to evaluate the investment specifications of their work force when considering options such as brokerage accounts or mutual fund windows with funds that are not monitored. At least, the participants should be warned about the risk of large losses and the need for investment experience or advice to prudently use those vehicles. Plan committee members must ask whether--as fiduciaries with a job to prudently provide investment alternatives designed for retirement accumulation--these vehicles are appropriate and suitable for the particular work force. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.