On November 19, 2009, the Department of Labor (DOL) officially withdrew its regulation that would have allowed advisors, who are affiliated with insurance companies and mutual funds that sell investments to plans, to provide investment advice to plan participants and beneficiaries. The regulation implemented a statutory prohibited transaction exemption that was enacted as part of the Pension Protection Act (PPA). It also contained a prohibited transaction class exemption providing additional relief for investment advice provided to individuals following the furnishing of recommendations generated by a computer model as provided for in the PPA and the implementing regulation. The effective date for the embattled rulemaking was originally to be March 23, 2009, but was subsequently delayed several times in response to public comments critical of the rulemaking, most recently until May 17, 2010.
In its release announcing the withdrawal of the regulation, DOL stated that “[it] decided to withdraw the rule based on public comments that raised sufficient doubts as to whether the conditions of the final rule and the class exemption associated with the rule could adequately protect the interests of plan participants and beneficiaries.” DOL was responding to comments that the regulation and class exemption did not adequately deal with potential investment adviser self-dealing and that if conflicts were not mitigated, advice might be tainted. Other comments expressed concern with the DOL’s interpretation of the statutory “fee-leveling” requirement which allowed the receipt of varying fees, rather than level fees, by an affiliate of a fiduciary adviser.