<nobr>Aug 25, 2008</nobr>

DOL Proposes Rules on Investment Advice Exemption for 401(k) Plans and IRAs

The Department of Labor on August 22 published in the Federal Register two proposed rules under the Pension Protection Act (PPA) to make investment advice more accessible for participants in 401(k) type plans and individual retirement accounts (IRAs).

The proposed regulations would implement the provisions of the statutory exemption set forth in Sections 408(b)(14) and 408(g) of ERISA as amended by the PPA relating to investment advice by a fiduciary adviser to participants and beneficiaries in participant-directed individual account plans, such as 401(k) plans, and beneficiaries of individual retirement accounts (and certain similar plans).

The PPA amended ERISA by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. The proposal generally tracks the requirements under Section 408(g) that must be satisfied for the investment advice-related transactions described in section 408(b)(14) to be exempt from the prohibitions of section 406. The proposed regulation provides general guidance on the exemption's requirements, including computer model certification, and includes a non-mandatory model form that advisers may use to satisfy the exemptions fee disclosure requirement.

One way in which investment advice may be given under the exemption is through a computer model certified as unbiased, the other is through an adviser compensated on a "level-fee" basis. Several other requirements must also be satisfied, including disclosure of fees the adviser is to receive.

DOL also proposed a class exemption that permits advisors to provide individualized advice to a worker after giving advice generated by use of a computer model. The proposed class exemption from certain prohibited transaction restrictions would permit investment advice by a fiduciary adviser to a participant or beneficiary in an individual account plan or individual retirement accounts, the acquisition or sale of a security or other property pursuant to the advice, and the receipt of fees or other compensation in connection with such transactions.

Separately, the department also released its determination relating to the feasibility of using computer models for providing investment advice to participants of IRAs.

DOL proposes that the regulations be effective 60 days after publication of the final regulations in the Federal Register, and invites comments on whether the final regulations should be made effective on a different date. DOL proposes that the effective date for the proposed class exemption be 90 days after the publication of the final exemption in the Federal Register.

Written comments on the proposed regulations and exemption should be submitted to DOL by October 6, 2008. ERIC will host a member call for comments shortly after Labor Day.


Websites:

Proposed Regulations

Proposed Class Exemption

Back to Previous Page