Definition
ERISA Section 404 is the provision of the Employee Retirement Income Security Act that sets out the core fiduciary duties — loyalty, prudence, diversification, and adherence to plan documents — that every ERISA plan fiduciary must satisfy in administering a covered plan.
Why it matters
Section 404 is the section of ERISA under which fiduciary conduct is actually judged. When a lawsuit alleges that a plan sponsor, plan administrator, or investment committee failed to act appropriately, the claim is almost always brought as a Section 404 claim.
How it works
Section 404(a)(1) enumerates four duties that a fiduciary must satisfy in discharging duties with respect to a plan. The duty of loyalty requires the fiduciary to act solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses. The duty of prudence — as elaborated by ERISA and case law into the prudent expert standard — requires the care, skill, prudence, and diligence that a prudent person familiar with such matters would use. The duty of diversification requires the fiduciary to diversify plan investments so as to minimize the risk of large losses, unless clearly prudent not to. The duty to follow plan documents requires the fiduciary to act in accordance with the plan documents insofar as those documents are consistent with ERISA. A single decision — for example, selecting an investment option for a DC plan menu — is evaluated against all four duties simultaneously; failure on any one is a potential breach.
In practice
For an individual participant in a DC plan, ERISA Section 404 is what makes the plan's fiduciaries personally responsible for the decisions they make about the plan menu, the plan's administrative arrangements, and the plan's operations. Individuals do not enforce Section 404 duties directly in the way they might read a product disclosure; the duties operate at the plan level and are enforced through fiduciary litigation, Department of Labor examinations, or plan committee documentation processes. What an individual can reasonably ask a plan sponsor is whether the plan has a documented process for evaluating its investment options against a prudent-expert standard, and whether that process is applied to any lifetime income option the plan offers or is considering. Plan fiduciaries evaluating in-plan lifetime income options are applying Section 404 duties whether or not they characterize the process in those terms; naming the section makes the analytical basis of the evaluation explicit.
In the Longevity Standard Framework
ERISA Section 404 is the statutory context for the DC plan fiduciary process. The LS framework evaluates arrangements structurally; it does not advocate any specific interpretation of how the Section 404 standards should be applied.
Related terms
- Employee Retirement Income Security Act
- ERISA fiduciary
- Prudent expert standard
- Exclusive benefit rule
- Diversification requirement
- Fiduciary breach
- Investment policy statement
- Named fiduciary