What Is a Look-Through Investment Vehicle?

“I was reading the plan document for our 403(b) ERISA plan and came across the term “look-through investment vehicle” in the context of offering a broad range of investment alternatives under ERISA 404(c). Can the Experts tell me what a look-through investment vehicle is, whether any/all of our plan investments (we utilize annuities and mutual funds) are look-through investment vehicles, and any actions we should be taking in this regard?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

First, the Experts commend you taking the time to read your plan document. One of the basic fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA) is to follow the plan document. Thus, reading and understanding the plan document, though not always the most exciting exercise, is an integral part of being a fiduciary.

You have come across a little-used term that might have some meaning in the context of your plan, presuming your plan is intended to comply with ERISA 404(c). The fiduciaries of a “404(c) plan” are not liable for any losses that may result from a participant’s exercise of investment control over the assets of his/her account; most ERISA 403(b) plans seek to comply with 404(c) for this reason. The 404(c) regulation includes requirements that the plan make available a “broad range of investment alternatives” that, in aggregate, allow a participant to diversify his/her investment holdings to minimize overall investment risk and the risk of large losses through diversification. The concept of a look-through investment vehicle addresses the investment diversification issue by “looking-through” to the underlying holdings of a plan investment option that satisfies the regulation’s definition. A look-through investment vehicle is defined under Department of Labor Regulation 2550.404c-1(e)(1) as follows:

(i) An investment company described in section 3(a) of the Investment Company Act of 1940, or a series investment company described in section 18(f) of the 1940 Act or any of the segregated portfolios of such company;

(ii) A common or collective trust fund or a pooled investment fund maintained by a bank or similar institution, a deposit in a bank or similar institution, or a fixed rate investment contract of a bank or similar institution;

(iii) A pooled separate account or a fixed rate investment contract of an insurance company qualified to do business in a State; or

(iv) Any entity whose assets include plan assets by reason of a plan’s investment in the entity.

The mutual funds in your plan likely satisfy item (i) of this definition, and the annuities in your plan likely make available pooled separate account and fixed rate investments that satisfy item (iii). Thus, all of your plan’s investments are likely look-through investment vehicles for 404(c) purposes.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.