404(a) and 404(c) and 408(b)(2), oh my!

Today we get into some common regulations and required disclosures for retirement plans. Several numbers starting with “40” are often thrown around (and 99% of the population does not know what they mean), so we’re shedding light on what they are, and what they mean for you (the Plan Sponsor or the Plan Participant).



404(a) is part of ERISA. (What is ERISA?) 404(a) states that the investment of plan assets is a fiduciary act. This section requires plan fiduciaries to act prudently and solely in the interest of the plan’s participants and beneficiaries.

If the plan allows the participants to self-direct their accounts, then the government believes that the fiduciaries must help the participants by educating them on how to manage their accounts and the fees related to the plan.  The Department of Labor (DOL) issues and enforces rules in this area.


404(a) disclosures are disclosures sent to the participants by the plan sponsor, if the plan offers self-direction. The disclosures must go to all eligible participants, not just those who have accounts. The disclosures must include information about plan fees, expenses, and investment options.  Our shorthand description for these is “Participant Fee Disclosures.”

The disclosures are probably the most important part of 404(c) because they are the “action item” that fiduciaries have to worry about!

What does it mean for me?

If you’re a plan sponsor, you must provide the following information to your plan participants:

  • Overview of investment options in the plan
  • Comparison (in chart form) of the plan’s investments’ performance to benchmark investments’ performance
  • Plan fees and expenses that may come out of a participant’s account

But really… most often your recordkeeper will send this out to you (!) so you probably do not have to worry about compiling it yourself. For our plans, we (MRP) usually review each plan yearly to make sure that the plan sponsor received this information and we tell the sponsor how to distribute it to the participants.

(Sometimes the recordkeeper sends the information directly to the participants. Whether they do or don’t, we (MRP) pay attention to this and let you know exactly what you need to do, and when you need to do it.)

If you’re a participant, look out for these disclosures about once a year.



404(c) is another part of ERISA. 404(c) allows participants in a retirement plan to direct their own investment account.

The reason that some plans decide to self-direct (in fact, most new plans we open are self-directed nowadays) is two-fold:

  1. It allows the participants to make their own investment decisions.
  2. It allows the plan sponsor to not be liable for poor investment performance….if certain conditions are met. Letting participants “do whatever they want” does not get you off the hook!  A full discussion is beyond the scope of this article, but “too many” choices, especially with inadequate disclosure, may be as bad or worse than “not enough” choices.

The plan sponsor is responsible for making sure that the plan:

  1. Offers a broad range of investment alternatives, and
  2. Allows the participants to exercise control over their own accounts.


Oddly enough, (or not oddly at all, if you have any experience watching how the government does things), most of the 404(c) disclosures are no longer listed under 404(c), but instead they go under 404(a). As long as you do the required 404(a) disclosures, you’re all set for 404(c).

The only thing you do have to disclose for 404(c) specifically, is state that the plan complies with 404(c) regulations. This is usually done (once) in the SPD.

What does it mean for me?

If you’re a plan sponsor, it means that you should pay attention to 404(a)! You’ll likely get disclosures from your recordkeeper and we (MRP) will tell you what you need to do with them (send them to your participants).

If you’re a participant, look out for the disclosures mentioned above (under 404(a)).



408(b)(2) are regulations about fee disclosures, but these disclosures are going to the fiduciaries, generally the trustees, not the participants. It’s more about “what we (the provider) are charging” as opposed to “what you (the participant) are paying.  There is a subtle but distinct difference.  Every service provider to a plan (such as a TPA, recordkeeper, investment advisor) is required to disclose fees charged to a retirement plan. The service providers must also disclose whether or not they are a fiduciary (what is a fiduciary?).

Note: to be precise, the “service providers” mentioned are technically called “covered service providers”. Covered service providers include:

  • TPAs
  • Recordkeepers
  • Broker/dealers and investment advisors
  • And many more: accountants, actuaries, attorneys, auditors, consultants, etc…

Covered service providers are basically any provider that is providing services to a plan for a fee. The gist of this law is that sometimes fees are not clear, and these disclosures are supposed to make them clear.

An example would be:

  • You get invoiced directly by your attorney and this is an obvious fee.
  • Your advisor gets paid as a percentage of assets in the plan, but you don’t receive a direct invoice so you might forget about these fees.

(This example is just one example of how fees may be paid – your plan could be different.)

408(b)(2) disclosures are supposed to make all these fees clear and up front. Which leads us to…


408(b)(2) disclosures are disclosures sent to the sponsors of the plan by the service providers. Our shorthand for these is “compensation disclosures.”  For example – if you have a retirement plan with a  recordkeeper, the recordkeeper will send out a lot of papers to you that disclose their fees. We (MRP) often send it out to you directly with a brief explanation and instructions so that it makes sense. The fee disclosure should contain:

  1. Description of services provided
  2. Fees for those services
    1. Direct compensation (paid by the plan)
    2. Indirect compensation (not paid by the plan; often paid by the participants indirectly; ex: 12b-1 fees)
    3. …And how the fees are paid!
  3. If they act as a fiduciary for any services (What is a fiduciary?)

You should also get disclosures from any other providers that service the plan.

What does it mean for me?

If you’re a sponsor, wait until you get the disclosures from each of your providers. If you didn’t get one, ask for it!  If you don’t get one and don’t ask for it, you have a compliance problem, not the provider! If you aren’t sure, ask your TPA to help you compile everything. Your TPA is probably pretty good at reading through disclosures.

Once you have all the disclosures, review them to see if the fees you are paying seem “reasonable”. If you aren’t sure, you can always ask us for help. Your accountant, attorney, or advisor are also good people to ask.

If you’re a participant, this does not apply.