On February 26, the Department of Labor’s Employee Benefits Security Administration released a proposed rule relating to the provision of investment advice to participants and beneficiaries in individual account plans and retirement accounts (i.e., 401(k) plans). The proposed rule is intended to replace a final rule issued on January 21, 2009, but withdrawn later in the year after extensive criticism by commentators that it was inadequate to address issues of conflicts of interests and self-dealing by investment advisers. This new proposed rule has attempted to deal with these concerns by excluding an administrative class exemption that was the main reason for concern under the old regulation. The remainder of the new proposed rule addresses the requirements for satisfying the statutory investment advice exemption, which was adopted as part of the Pension Protection Act of 2006.
The new proposed regulation provides that investment advice to plan participants is appropriate if either (1) a certified, non-biased computer model is used, such that the model is designed and operated to avoid investment recommendations that inappropriately distinguish among investment alternatives, or (2) the advice is provided by an investment adviser who is compensated on a “level-fee” basis (i.e., the fees do not vary based on investments selected by the participant).
The proposed rule contains many administrative and procedural requirements that must be satisfied in connection with the implementation and operation of an investment advice program under a 401(k) plan. The proposed regulations are expected to go into effect 60 days following the publication of final regulations. While the timing of such publication is unclear, comments on the proposed rule must be submitted on or before May 5.
The proposed rule may be found here.