The effect Enron may have on fiduciaries of 401 (k) plans that do not comply with ERISA [section] 404(c): this column addresses the potential consequences of failing to comply with 404(c) in light of the Enron litigation, especially if the court in the Enron litigation agrees with the DOL's position. (401(K) Investment Issues).

In our last column (Journal of Pension Benefits, Volume 10, Number 2, pp. 101-103), we discussed the amicus brief filed by the Secretary of Labor in the ongoing Enron 401(k) Plan litigation. [Tittle v. Enron Corp., S.D. Tex., Civil Action No. H-01-3913] In that brief, the U.S. Department of Labor (DOL) asserts that unless the plan complies with all of the requirements set forth in the DOLs regulation interpreting Section 404(c) of the Employee Retirement Income Security Act (ERISA), the plan fiduciaries are responsible for all of the plan's investments, including investment choices made by participants. As explained in our last column, given the DOLs position in the Enron brief, it would be irrational for plan sponsors and investment fiduciaries to fail to comply with 404(c). And yet, some plan sponsors and investment fiduciaries do not comply with 404(c).

What Effect Does the DOL Brief Have?

The DOL brief is not the law. In fact, the DOL brief is not binding on any person. However, it is likely that the court will give the DOLs brief significant weight and, therefore, it could affect the outcome of the litigation.

The DOL has filed what is known as an amicus brief. An amicus brief is a document filed by a person who is not a party to a lawsuit, but who has an interest in the outcome of the litigation--and particularly in the legal interpretations made by the court. (The word "amicus" is derived from the Latin word for "friend," and the term implies that the party filing the brief is a "friend of the court.") In this case, the DOL filed the brief as a friend of the court in support of the plaintiffs' positions on several legal issues. The positions supported by the DOL include the potential liability of Enron, former CEO Kenneth Lay, the Plan Administrative Committee members, and the members of the board's Compensation Committee (the Enron Plan Fiduciaries) for losses sustained by the participants in the wake of Enron's accounting scandals and bankruptcy. The DOLs amicus brief is not very friendly to 401(k) sponsors and fiduciaries.

The DOL …