Exemption for 401(k) Advice Delayed Pending Review of Comments
| Date Posted: July 13, 2009 |
The effective date of an important rule on investment advice under the Pension Protection Act of 2006 (PPA) will be extended an additional 180 days, the U.S. Department of Labor’s (DOL’s) Employee Benefits Security Administration announced. The new effective date is Nov. 18, 2009.
The rule, promulgated May 22, adds a statutory exemption for investment advice, loosening restrictions on the types of information 401(k) administrators can provide to employees of the companies with which they do business.
The final rule provides general guidance on the exemption’s requirements, including computer model certification and disclosures by fiduciaries. It also includes a model form to help advisers satisfy the exemption’s fee disclosure requirements.
The rule was supposed to take effect March 23. In January, however, the Obama White House asked agency heads to review regulations published late in the prior administration, and, if warranted, provide an additional comment period. DOL received 27 comments by the March 6 deadline, a number of which said the final rule raises “significant issues of law and policy.”
DOL said the “complexity and significance” of the issues involved justify delaying the rule for an additional 180 days.
PPA amended ERISA by allowing greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. Investment advice may be given in several ways, under the exemption. Under one option, advice may be given through the use of a computer model certified as unbiased and which takes into account the investor’s age, risk tolerance, financial situation and other factors. The software must be reviewed and approved by an independent third party.
The other way is through an adviser compensated on a “level-fee” basis, meaning an adviser can recommend a mix of investments from within a plan as long as the fees for all plan participants are the same, regardless of the individual investment choices they make.
Previously, plan administrators were limited to educating participants about investment options without making specific recommendations.
More information on the DOL rules can be found in the 401(k) Handbook.
The rule, promulgated May 22, adds a statutory exemption for investment advice, loosening restrictions on the types of information 401(k) administrators can provide to employees of the companies with which they do business.
The final rule provides general guidance on the exemption’s requirements, including computer model certification and disclosures by fiduciaries. It also includes a model form to help advisers satisfy the exemption’s fee disclosure requirements.
The rule was supposed to take effect March 23. In January, however, the Obama White House asked agency heads to review regulations published late in the prior administration, and, if warranted, provide an additional comment period. DOL received 27 comments by the March 6 deadline, a number of which said the final rule raises “significant issues of law and policy.”
DOL said the “complexity and significance” of the issues involved justify delaying the rule for an additional 180 days.
PPA amended ERISA by allowing greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. Investment advice may be given in several ways, under the exemption. Under one option, advice may be given through the use of a computer model certified as unbiased and which takes into account the investor’s age, risk tolerance, financial situation and other factors. The software must be reviewed and approved by an independent third party.
The other way is through an adviser compensated on a “level-fee” basis, meaning an adviser can recommend a mix of investments from within a plan as long as the fees for all plan participants are the same, regardless of the individual investment choices they make.
Previously, plan administrators were limited to educating participants about investment options without making specific recommendations.
More information on the DOL rules can be found in the 401(k) Handbook.
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