Employers should be about as careful when setting up the new retirement plan investment advice programs as they are when running advice programs not affected by the new federal advice laws.
Robert Doyle, a director in the Employee Benefits Security Administration, gives that assessment in Field Assistance Bulletin Number 2007-01, which describes how EBSA will interpret the retirement plan investment provisions of the Pension Protection Act of 2006.
The PPA encourages plan sponsors to offer plan participants access to investment advice through “eligible investment advice arrangements.” Advisors in the arrangements can charge for the advice they give to retirement plan participants as long as the fees do not depend on the investment options selected. Advisors may even be able to charge fees that depend on the options selected if a computer model that meets standards that are still under development chooses the investments.
Before the PPA came along, employers could offer investment advice to plan participants, but the rules for advisor compensation were unclear.
Today, when using an eligible investment advice arrangement, “plan fiduciaries have a duty to prudently select and periodically monitor the advisory program,” Doyle writes.
But “fiduciaries have no duty to monitor the specific investment advice given by the fiduciary adviser to any particular recipient of advice,” Doyle writes.
The rules are the same regardless of whether the employer is using an eligible investment advice arrangement under the PPA or providing advice through some other means, Doyle writes.
Any fiduciary picking a plan participant investment advisor “should engage in an objective process that is designed to elicit information necessary to assess the provider’s qualifications, quality of services offered and reasonableness of fees charged for the service,” Doyle writes. “The process also must avoid self dealing, conflicts of interest or other improper influence.”
Fiduciaries also should consider the extent to which the advice furnished will be based upon “generally accepted investment theories,” Doyle writes.
In another section of the bulletin, Doyle notes that suppliers of investment advice to retirement plan participants can not vary their fees based on the investments chosen, but that insurers, banks or broker-dealers affiliated with the advisors can vary the fees they charge the recipients of the advice.
A copy of the EBSA guidance is on the Web at Document Link