On August 22, 2008, the Labor Department proposed a regulation that implements the "investment advice" exemption enacted as part of the Pension Protection Act. Simultaneously, the Department issued a proposed prohibited transaction class exemption that will allow investment advice to be provided to individuals with individual retirement accounts.
The Pension Protection Act made a number of sweeping changes to the nation's pension system, including allowing qualified fiduciary advisers to offer investment advice under an eligible investment advice arrangement to plan participants without violating ERISA's prohibited transaction provisions. One of the requirements of the exemption is that the investment advice be provided either through the use of a computer model that is certified by an independent party as being unbiased or through an adviser that is compensated on a level-fee basis. Another requirement is that the fiduciary adviser provide a participant or beneficiary before the initial provision of the investment advice, a written notification which includes, among other things, all fees or other compensation relating to the advice that the fiduciary adviser or any affiliate thereof is to receive (including compensation provided by any third party).
The proposed regulation provides general guidance with respect to the statutory exemption's requirements, including guidance with respect to arrangements that use level fees and those that rely on computer models and the disclosure of a fiduciary adviser's fees. In addition, the Labor Department has proposed a model disclosure form that may be used for purposes of satisfying the fee and compensation disclosure requirement.
If the conditions of the proposed class exemption are satisfied, a fiduciary adviser will be able to provide plan participants and beneficiaries with individualized investment advice following the furnishing of computer generated recommendations and with respect to IRA holders, individualized investment advice following the furnishing of certain educational material.
Comments on the proposed regulation are due by October 6, 2008.