Behavioral Finance - Reading 11: Investment Decision Making allocation, Investment, only, investment

mayanfang1

Q2. Leonard Busch is a participant in the Matrix Technologies defined contribution plan. The assets in the plan are the only investments he owns. Busch’s investment allocation is shown below. 

Allocation	Investment Option
20%	Yukon Large Cap Growth Fund
40%	Matrix Technologies Company Stock
15%	Yukon Intermediate Bond Fund
10%	Yukon Money Market Fund
15%	Yukon International Stock Fund

Which of the following best describes fiduciary position of Matrix Technologies as it relates to ERISA requirements and Busch’s allocation? Matrix Technologies is:

A)   in violation of ERISA requirements by allowing Busch to hold more than 10% of his plan assets in company stock.

B)   only in violation if the employer forces Busch to invest any funds in company stock.

C)   not in violation of ERISA requirements because the decision to invest a large percentage of funds in company stock is up to the participant.

mayanfang1

 

答案和详解如下：

Q2. Correct answer is C)

Looking at Busch’s allocation, he obviously has a disproportionate amount of Matrix Technologies company stock. In 1974, U.S. Congress enacted a law (ERISA) that prohibits investment of more than 10% of defined benefit plan assets in company stock, but no such law applies to defined contribution plans. The only related provision states that employers cannot force participants to invest more than 10% in company stock. This means that employers could force employees to hold some percentage in company stock (many companies that match employee contributions will force the employee to hold those matching contributions in company stock). There is no provision that prohibits the employee from investing any amount they want in company stock; therefore, Matrix Technologies is not in violation of ERISA requirements.

 

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