Q: Suppose there is a company that maintains a fully funded, separate retirement fund that each year attempts to provide additional monies in the form of "profit sharing.” This occurs in two stages: (1) a direct cash payout at the end of a calendar year, and (2) a secondary payment in the second quarter of the following year (based on earnings) into a 404(c) plan which is then subsequently re-directed into an investment plan with a third party administrator.
However, the company does not give employees the ability to “opt out” of this plan under ERISA rules to prevent their second contribution from going to an investment firm. Am I correct that this is in direct violation of federal law and constitutes a level of risk that no employee should be forced to make?
A: You are correct that you cannot opt out; however, if the investment choices don't meet your individual goals or needs, you can discuss the addition of additional products with your employer. While if they are meeting the core investment requirements to reduce their fiduciary liability under ERISA 404(c), they are not required to add additional choices, they might be willing to do so for employees not satisfied with the current choices.
Sadly, the U.S. Department of Labor websites have very little information available regarding "opt out" provisions. It’s clear that these laws were only written for the benefit of employers...because they basically exempt the fiduciary from liability as long as money is diverted into a plan that has three or more investment choices.