ERISA Section 404(c)
Since the enactment of Employee Retirement Income Security Act of 1974 (ERISA), the responsibility for the investment of plan assets is a Fiduciary function. Defined benefit pension plans were the normal form of retirement benefit, with fiduciary investment responsibility extending to the prudent selection, monitoring, and investment (asset allocation) decisions. Given the size and scope of this responsibility, Plan fiduciaries usually hired experts to assist them with this process (pension consultants, actuaries, advisers).
With the growing popularity of plans with section 401(k) contribution, the general idea of offering a menu of options, and permitting Participants to select among them, seemed reasonably sufficient to protect fiduciaries from a Participant’s asset allocation decision. But, federal regulators did not agree, reasoning that a Participant should have enough information in order to make an informed investment decision, and “enough” should be defined in ERISA.
Proposed regulations were issued in 1987 and 1991, and after a comment period, final ERISA Section 404(c) regulations were issued October of 1992. These became generally effective January 1, 1994 (for a calendar year plan). The final regulations marked the first time a fiduciary could rely upon regulatory guidelines to shift the investment decision (asset allocation) to individual participants.