Aside from guidance issued by the Department of Labor (DOL) earlier this year, which specified that as per the requirements of the 2006 Pension Protection Act
(PPA), an advisor to a 401(k) plan has a fiduciary responsibility toward that plan, there has not been much by way of explanation of the different elements embodied by the PPA, and one year after its release, financial professionals are still trying to get a handle on it.
Since the PPA went into effect, advisors have been doing their level best to follow best practices, says Dennis Long, VP of Retirement and Investor Services at Des Moines-based The Principal Financial Group, getting their houses in order, and making sure that they are complying with the requirements of the PPA. Indeed, the new law can mean either new business opportunities for those who are complying with it, or potential litigation for those who aren’t, so any piece of information that sheds better light on the PPA is vital at this stage, Long says.
To this end, The Principal recently published a white paper entitled “Pension Protection Act of 2006: Is An Expanded Fiduciary Role The Right Choice For Financial Professionals?” which seeks to help financial advisors better understand their fiduciary responsibilities in the post-PPA era.
“The PPA validates the fact that advice is very valuable to, and wanted by, plan participants, and that employers who are sponsoring plans must do so in the appropriate way,” Long says. “However, there has been some confusion on what the fiduciary responsibility of advisors entails, so financial advisors who work in qualified retirement plans need to step back and assess their own business plans and make sure they are abiding with the new PPA rules.”
The white paper is aimed at helping advisors assess their plans, Long says. It addresses, among others, the newly created role of the fiduciary advisor and duties of a fiduciary; compensation and fee guidelines; disclosure and audit requirements; requirements related to the use of computer modeling in providing investment advice, and the implications of defensive strategies (aimed at protecting the adviser from liability) and offensive strategies (geared toward expanding business).
The Principal has also created a “Pension Protection Act Guide,” as well as a number of issue papers that provide insight into specific topics at