There's more liability with Trustee-directed portfolios
The alternative to a 404(c) plan in which participants and beneficiaries make investment decisions is for the Plan's Trustee to make all such decisions. This latter approach to the management of Plan assets is generally referred to as a Trustee-Directed Portfolio. A Trustee can obtain the liability relief of 405(d)(1) through delegation of the day-to-day management to an investment manager.
Therefore, an investment portfolio, whether it is a Trustee-directed pooled account or a "menu of funds" available for participant direction, requires a certain amount of oversight. The criteria that are reviewed, the frequency with which they are reviewed, and the decision matrix for making adjustments are substantially similar in both cases.
Participant-directed investment menus offered under 404(c) are subject to additional requirements that are not applied to Trustee-directed portfolios. Meeting these additional requirements (provision of proper and timely information, communication protocols, portfolio construction education, etc.) can be onerous and failure to meet them properly creates liability.
The decision to offer participant direction is more an Employee Relations issue than a successful effort to minimize fiduciary liability by shifting decision making to participants.
Certainly, a trustee-directed portfolio avoids the problem of deciding upon the one portfolio strategy that is best for a diverse employee population at different stages of their working careers. Plus, employees have come to expect the "freedom" inherent in daily valuation retirement plan platforms.
The fact that a Participant or beneficiary directs the investments within their account does not create the relief from liability.
The fulfillment of the conditions set forth in the DOL's Final Regulations by the Plan Fiduciary that characterizes a Participant's decision making as "independent control" creates the relief from liability.
More things can go wrong with the operation of a 404(c) plan than could go wrong with a trustee-directed plan.