Are there limits on qualified plan investments?
Answer: Although there is no list of approved investments for retirement plans, there are special rules contained in ERISA that apply to retirement plan investments. When investing plan assets, a plan sponsor or plan administrator who acts in a fiduciary capacity is required to exercise the judgment that a prudent investor would use in investing for his or her own retirement funds.
There are some investment limitations. For example:
- there are different limits on the amount of employer stock and employer real property that a qualified plan can hold,
- 401(k) plans and IRAs cannot invest in collectibles, such as art, antiques, gems, coins,
- individual retirement accounts also are not permitted to invest in life insurance.
To avoid or limit fiduciary liability, 401(k) plans that permit participant-directed investments can offer at least three diversified options for investment, each with different risk/return factors.