Does ERISA Require that Employers Provide Investment Education to Participants?

By Fred Reish and Bruce Ashton

As participant-directed 401(k) plans have grown in popularity, employers and investment providers have focused on investment education for 401(k) participants. That education often takes the form of newsletters, videotapes, on-site educational programs, computer software and Internet Web sites. These materials and programs typically cover general investment education, retirement planning and asset allocation.

More recently, that focus has broadened to include investment advice—to meet a perceived need by participants for guidance on the specific funds in which to invest. In many cases, this service is being offered as a part of the 401(k) investment package. For example, investment providers (e.g., mutual fund or insurance companies) are forming strategic alliances with Internet providers of investment advice, such as the 401(k) Forum and Financial Engines.

The growth in popularity of investment education and investment advice raises two fundamental questions: (1) Does ERISA require that employers provide investment education or advice? and (2) What fiduciary responsibilities do employers have when they offer investment education or advice?

The regulations under ERISA §404(c) make it clear that employers are not required to provide advice. Those regulations state:

"No obligation to advise. A fiduciary has no obligation under part 4 of Title I of the Act to provide investment advice to a participant or beneficiary under an ERISA section 404(c) plan.”

While neither ERISA nor its regulations have a specific provision dealing with investment education, in Interpretive Bulletin 96-1, the DOL points out that investment education is not required to be provided in order to obtain 404(c) protection for losses resulting from participant investment decisions. Since compliance with 404(c) regulations is, in effect, a defense to participant claims, it should be safe to assume that investment education is not generally required to comply with ERISA’s fiduciary rules for participant-directed plans. In that regard, Interpretive Bulletin 96-1 states:

“The section 404(c) regulation conditions relief from fiduciary liability on, among other things, the participant or beneficiary being provided or having the opportunity to obtain sufficient investment information regarding the investment alternatives available under the plan in order to make informed investment decisions. Compliance with this condition, however, does not require that participants and beneficiaries be offered or provided either investment advice or investment education, e.g., regarding general investment principles and strategies, to assist them in making investment decisions. 29 CFR 2550.404c-1(c)(4).” (Emphasis added.)