Question

Under the ERISA section 404(c) plan, in which (T) is the plan trustee, a participant (P) exercises independent control with respect to his individual account plan assets. Under the ERISA 404(c) provisions, which of the following is CORRECT?

1) By reason of his exercise of control, P is a fiduciary with respect to the plan, and T will be liable for any breach or loss that occurs as a result of P's direction.
2) T would be liable for any loss or breach under ERISA if P's direction caused T to maintain the indicia of ownership of the plan assets outside of the jurisdiction of the United States District Court.
3) T would not be liable for any loss or breach under ERISA even if P's directions could result in a loss that exceeds P's account balance.
4) T would be liable for any loss or breach under ERISA if P's directions caused T to purchase securities from a party-in-interest.

Answer 1

Under the ERISA 404(c) provisions, a participant exercises independent control over their individual account plan assets. The plan trustee is still liable for any breach or loss that occurs as a result of the participant's direction. However, the trustee would not be liable if the participant's directions could result in a loss that exceeds their account balance.

Step-by-step explanation:

Under the ERISA 404(c) provisions, a participant (P) exercises independent control over their individual account plan assets. However, this does not make the participant a fiduciary with respect to the plan. The plan trustee (T) is still liable for any breach or loss that occurs as a result of the participant's direction.

In this situation, T would not be liable for any loss or breach under ERISA if P's directions could result in a loss that exceeds P's account balance. ERISA 404(c) provides that the participant bears all investment-related risks, including the risk of loss.

However, if P's directions caused T to engage in a prohibited transaction, such as purchasing securities from a party-in-interest, T would be liable for any loss or breach under ERISA.