DoL Finalizes Rules on Investment Advice

January 16, 2009 ( - The U.S. Department of Labor (DoL) announced publication of a final rule to make investment advice more accessible for participants in 401(k) type plans and individual retirement accounts (IRAs).

According to a DoL press release, the rule includes a regulation that implements the new statutory exemption for investment advice added to the Employee Retirement Income Security Act (ERISA) by the Pension Protection Act (PPA) and a related class exemption. The final rule provides general guidance on the exemption’s requirements, including computer model certification and disclosures by fiduciaries.  

The regulation also includes a model form to assist advisers in satisfying the exemption’s fee disclosure requirement, and a class exemption expanding the availability of investment advice.

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. Investment advice may be given under the exemption through the use of a computer model certified as unbiased, or through an adviser compensated on a “level-fee” basis. Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.

Last August, The DoL issued proposed regulations concerning investment advice (see EBSA Clarifies Investment Advice Regulations ) that outlined advice requirements, requiring the adviser to obtain necessary information about the participant, such as age and financial situation. The proposal also required that a participant must receive full disclosure of the adviser’s fees, and whether the adviser has any financial interest in the advice or who the adviser is connected to. Also, under the proposal, a plan fiduciary must review the advice, and there will an annual audit by an independent auditor to ensure the plan is following the investment advice rules.

In a statement, House Republican Leader John Boehner (R-Ohio), a long-time proponent of allowing participant investment advice, applauded the Administration’s action calling it “one that will benefit countless workers, retirees, and their families.”

“Now more than ever, workers need independent, personally-tailored investment advice to help them navigate the turbulent markets and safeguard their financial futures…  These new regulations make our bipartisan promise of high-quality investment advice a reality,” Boehner said in the statement.

The final rule is available  here .