The Department of Labor (DOL) has issued a Field Assistance Bulletin (No. 2007-1) providing some initial guidance on implementing the investment advice provisions of the Pension Protection Act of 2006 (PPA).
Many, if not most, individual account plaen participants need professional investment advice. Almost every study and survey confi rms that fact. But two issues have blocked an effective solution to the problem. First, plan sponsors themselves want to be protected from fi duciary liability if they secure such advice for participants. Second, participants need advisers who do not have a confl ict of interest in providing the investment advice.
Prior to the PPA, the DOL had taken several steps to allow investment advice to be provided to plan participants. Now the PPA has established a clear structure for making investment advice more available. The PPA provides a fiduciary “safe harbor” for providing investment advice under an “eligible investment advice arrangement.” (ERISA sections 408(b)(14) and 408(g))
An “eligible investment advice arrangement” can be in the form of: (a) a level-fee arrangement where the adviser receives the same fee regardless of the advice given to an individual or (b) a computer model advice program where the computer model has been determined to be unbiased. As of this date, no computer model has been approved by the DOL.
The DOL Field Assistance Bulletin responds to some initial questions received by the DOL in this area.
First, fiduciary advisers wanted assurance regarding the fees of their affi liates. Would those fees be permitted to vary? The DOL’s response is that only the fees of the fi duciary adviser cannot vary. An affi liate of the fi duciary adviser may have varying fees as long as the affiliate itself is not providing investment advice.
The DOL also answered two related questions: First, what is the extent of plan sponsor fiduciary responsibility in connection with implementing these arrangements? As anticipated, the DOL’s position is that the plan sponsor (or other responsible plan fiduciary) implementing an “eligible investment advice arrangement” retains fi duciary liability as to the prudent selection and monitoring of the fi duciary advisers.
Second, questions were raised about whether the DOL’s prior advice in this area was still valid. Some believe the prior advice may be easier to comply with than the PPA provisions. The DOL confirmed that its pre-PPA advice continues to be valid. Specifi cally, the advice the DOL gave previously in this area (e.g., Interpretive Bulletin 96-1 explaining the difference between investment advice and general educational information and various advisory opinions) may still be relied on.