Should you offer participant direction without complying with 404(c)?

A Plan Fiduciary who permits a participant or beneficiary to direct the investments within their account without the statutory protection of 404(c) has the burden of proving that each and every transaction affected by participant or beneficiary was in fact prudent and reflects an expert understanding of the capital markets.

Without the protection of 404(c), investment decisions of participants and beneficiaries become the investment decisions of the Plan fiduciary. Under ERISA Section 404(a)(1) fiduciaries are bound to discharge their duties "solely in the interest of the participants" and "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity" would use and "by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so".

Against this standard and in hindsight, was each and every decision of the participant and beneficiary prudent? If not, the Plan fiduciary is personally liable for the losses of the participant and beneficiary. Losses will be calculated as the difference in the actual account and what the participant or beneficiary should have earned.