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:

  1. there are different limits on the amount of employer stock and employer real property that a qualified plan can hold,
  2. 401(k) plans and IRAs cannot invest in collectibles, such as art, antiques, gems, coins,
  3. 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.