DoL Proposes New Advice Rule

February 26, 2010 (PLANSPONSOR.com) - The U.S. Department of Labor has proposed a new rule on the provision of investment advice to retirement plan participants.

A DoL fact sheet said that after review, the Department decided to propose a revised rule limited to the implementation of the Pension Protection Act statutory exemption relating to investment advice. The proposed regulation allows investment advice to be given under the statutory exemption in two ways: through the use of a computer model certified as unbiased; and through an adviser compensated on a “level-fee” basis (i.e., fees do not vary based on investments selected by the participant).

Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.

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The regulation contains some key safeguards and conditions, according to the fact sheet, including:

  • Requiring that a plan fiduciary (independent of the investment adviser or its affiliates) select the computer model or fee leveling investment advice arrangement;
  • Imposing recordkeeping requirements for investment advisers relying on the exemption for computer model or fee leveling advice arrangements;
  • Requiring that computer models must be certified in advance as unbiased and meeting the exemption’s requirements by an independent expert;
  • Establishing qualifications and a selection process for the investment expert who must perform the certification;
  • Clarifying that the fee-leveling requirements do not permit investment advisers (including its employees) to receive compensation from affiliates on the basis of their recommendations;
  • Establishing an annual audit of investment advice arrangements, including the requirement that the auditor be independent from the investment advice provider; and
  • Requiring disclosures by advisers to plan participants.

 

A previous rule was retracted by the DoL (see EBSA Pulls Back Controversial Advice Mandate) because it said “comments … raised sufficient doubts as to whether the conditions of the final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.”

Written comments on the new investment advice proposal should be addressed to the Office of Regulations and Interpretation, Employee Benefits Security Administration, Room N-5665, U.S. Department of Labor, 200 Constitution Ave. NW, Washington, D.C. 20210, Attn: 2010 Investment Advice Proposed Rule.  The public also may submit comments electronically by email e-ORI@dol.gov or through the federal e-rulemaking portal at http://www.regulations.gov.

Text of the new rule is here.

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