Compliance January 20, 2006

Participant-chosen Financial Advisor is a Plan Fiduciary

January 20, 2006 (PLANSPONSOR.com) - The Department of Labor (DoL), in an advisory opinion letter, says that a financial advisor chosen by the participant to advise on how to direct the investment's of a participant's retirement plan account is a plan fiduciary under the Employee Retirement Income Security Act (ERISA).
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In the letter, the DoL says that an individual who, for a fee, advises the participant on how to invest the assets of a plan account or manages the plan account is a plan fiduciary, even if the individual has no other connection with or fiduciary responsibility to the plan.   The ERISA definition of plan fiduciary includes those providing investment advice to participants when the plan allows for participant direction of assets, the DoL said.

The DoL further stated that other plan fiduciaries do not have any obligation to advise the participant about a financial advisor or the direction of the financial advisor.   Further, other plan fiduciaries will not be liable for any of the participant-chosen investment advisor decisions.

In addition, the DoL was asked if an individual who advised the participant to roll over his plan account into an Individual Retirement Account (IRA) in order to take advantage of investments not offered by the plan would be a plan fiduciary.   The DoL responded that an individual who simply advises the participant to take a permitted plan distribution, even when giving investment advice for that distribution, is not a plan fiduciary as they are giving advice with respect to funds that are no longer in the plan.

The individual who advises the participant on the rollover distribution is also not engaging in a prohibited transaction if he stands to gain management or investment fees related to the IRA, according to the DoL.

The opinion letter is  here .

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