The U.S. Department of Labor (DOL) announced August 20 two proposed rules under the Pension Protection Act (PPA) designed to make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs).
Brad Campbell, assistant secretary for DOL’s Employee Benefits Security Administration (EBSA), told reporters on a conference call that as millions of people in defined contribution plans are making their own investment decisions for retirement, DOL has increasingly “seen the need” for participants and workers to have “access to quality, professional investment advice. That’s something that Congress and the Administration have, on a bipartisan basis, said is a good thing.”
The Pension Protection Act (PPA) amended the Employee Retirement Income Security Act (ERISA) by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice, the DOL explains in its release announcing the proposed rules. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased, the other is through an advisor compensated on a “level-fee” basis, which means the advisor receives the same compensation regardless of the investment chosen by the participant. Whatever fees the advisor is to receive must also be disclosed.