DoL Proposes Revamped Investment Advice Rule

The White House today proposed a new rule to implement the exemption for investment advice in the Pension Protection Act (PPA).

The proposed rule, now available for comment, would allow participants in 401(k) plans and IRAs to receive investment advice through an investment adviser receiving level fees that are fully disclosed or through a computer model determined to be “unbiased.”

The proposed rule looks a lot like the George W. Bush-era final regulations thrown out last year—but it also has some significant differences (see “EBSA Pulls Back Controversial Advice Mandate” and “Putting out Fires with Gasoline”). Most notably, the rule would require a level fee arrangement, meaning an investment adviser—or its firm or affiliates—cannot be compensated directly or indirectly based on the investment choices made by the participant.

In a conference call today, Assistant Secretary of Labor Phyllis Borzi clarified that investment advisers “can’t take advantage of this exemption from the ERISA rules if anyone at [the adviser’s] firm gets compensated by the choices that are made.” The goal is to make sure that participants are not steered toward higher-fee investment options. Borzi noted that the rule would also apply to target-date funds, which investment managers might construct with propriety funds benefiting their firms.

Borzi said the Bush regulations allowed for more flexibility and didn’t require the same fee-level arrangement. Furthermore, those regulations would have allowed advisers using a computer model to provide further advice after running participants through the computer model. While investment advisers with a previous relationship to the plan can still provide advice, Borzi said, the new proposal “dramatically narrows the circumstances under which that advice can be given.”

In its proposed rule, the DoL noted that its new regulations intended to address comments that expressed concerns with the previous rule. Critics of the final rule contended that, because the rule would permit the investment adviser to recommend investments with varying fees, it would allow for conflicted advice (see “Investment Advice Regs: Interview with NAPFA”). Supporters of the final rule argued that it contained enough safeguards to prevent conflicted advice (see “Investment Advice Regs: Interview with Bradford Campbell”).

With this proposed rule, the DoL hopes to allow for advice while also speaking to the concerns of those worried about conflict of interest. “The Department anticipates that full implementation of the PPA under this proposed regulation will ensure that quality, expert investment advice is provided to the greatest number of participants,” according to the regulation. “The Department further anticipates that the increased investment advice resulting from the rule will improve participants’ investment decisions and results and reduce investment related errors and expenses.”

The DoL predicts that the rule allowing advice will benefit two million workers and 13 million IRA holders, to the tune of $6 billion.

The proposal is open for comments, which should be addressed to the Office of Regulations and Interpretation, Employee Benefits Security Administration, Room N-5665, U.S. Department of Labor, 200 Constitution Ave. NW, Washington, D.C. 20210, Attn: 2010 Investment Advice Proposed Rule. 

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Comments can also be submitted by e-mailing e-ORI@dol.gov or through the federal e-rulemaking portal at www.regulations.gov

EBSA Recovered More Than $1B in 2009

The U. S. Department of Labor’s Employee Benefits Security Administration (EBSA) reported recovering $1.36 billion in 2009 for employee benefits plans governed by the Employee Retirement Income Security Act (ERISA).

An EBSA news release said the agency closed 3,669 civil investigations in fiscal year 2009.  In more than 72% of those cases, the agency found violations and obtained correction.  Criminal offenses involving employee benefit plans led to indictment of 115 individuals.

The agency also recovered $124.5 million for workers and their families through informal resolution of individual complaints. In addition, the agency said results were achieved through the its compliance assistance programs.

The Voluntary Fiduciary Correction Program (VFCP) received 1,692 applications from employers, plan officials, service providers, and other fiduciaries to self-correct violations of ERISA, and the Delinquent Filer Voluntary Compliance Program, which helps plan administrators comply with ERISA’s filing requirements, received 26,603 filings.

EBSA also reported it handled 365,457 inquiries from the public and conducted more than 1,500 education and outreach events that reached workers, employers, plan officials, and Congressional members. 

“These results reflect a strong, fair and aggressive program to protect the benefits of American workers, retirees and their families. We believe our civil enforcement program demonstrates the success of using targeted investigations,” said EBSA Assistant Secretary Phyllis C. Borzi, in the release.

A fact sheet about EBSA’s enforcement results, as well as more information about the VFCP, is available at www.dol.gov/ebsa.

«