ERISA AttorneyFred Reish of Reish, Luftman, McDaniel & Reicher, Los Angeles, offered his opinions on how fiduciaries can maintain the “prudent man standard” avoiding problems that arise with default accounts and deferral of deposits.
Default accounts – used for automatic contributions that participants do not offer specific direction for – can provide trouble for plan sponsors because “one size does not fit all” and with participants not driving the direction of their investments, Section 404 (c) protection may not be available.
If used, Reish warns against using money markets and guaranteed investment contracts (GICs). He finds neither suitable for the long term. Instead, Reish suggests using balanced or lifestyle funds, the later can offer model portfolios for different participant categories.
Deferral of deposits
ERISA allows up to 15 days beyond participant paydays to make the deposit. However, Reish recommends 3 to 5 days after the payday to avoid problems with the ERISA provision that states deposits should be made “as soon as you can reasonably segregate funds”. Failure to make timely payments could be considered a fiduciary breach.
Reish offered three steps for compliance with each decision: