Compliance December 2, 2006

EBSA Asks for a Hand in Developing 401(k), IRA Advice Regs

As federal regulators continue filling in the detailed framework for the Pension Protection Act’s (PPA) provisions, they are now asking for public comment on the PPA’s investment advice exemption for 401(k) plans and IRAs.
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The Department of Labor’s Employee Benefits Security Administration (EBSA) on Friday released two requests for information (RFI) on how to implement the PPA’s amendment of the Employee Retirement Income Security Act (ERISA) in the closely watched area of plan advice.

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The new prohibited transaction exemption allows greater flexibility for investment advisers to give advice to participants of 401(k) plans and IRAs and gives the Labor Department regulators the task of spelling out the details.

As Friday’s EBSA announcement points out, one of the ways in which advice may be given under the exemption is through the use of an unbiased computer model which must be certified by an independent expert under rules to be prescribed by the department.

The RFI on investment advice for 401(k)-type plans asks for the public’s help in determining what expertise and procedures may be needed to qualify an expert to certify a computer model under the exemption. Also, since the PPA requires the department to issue a model notice on fee disclosures related to the advice, the RFI asks for information on the types of fee disclosure materials currently used and their usefulness to plan participants.

EBSA is also asking for help deciding how to assess the feasibility of using computer models to provide advice to IRA participants. The PPA requires the department to solicit information from at least the top 50 IRA trustees and other entities offering computer model investment advice programs.

Written comments on the RFI for investment advice for 401(k) plans should be addressed to the Office of Regulations and Interpretation, Employee Benefits Security Administration, Room N-5669, U. S. Department of Labor,Attn: 401(k) Plan Investment Advice RFI.

Written comments on the RFI for investment advice for IRAs should be submitted to the same address, Attn: IRA Investment Advice RFI.

The public also may submit comments electronically by email to e-ori@dol.gov (for the 401(k) Plan Investment Advice RFI) or e-OED@dol.gov (for the IRA Investment Advice RFI).

Finally, input can be transmitted through the federal e-rulemaking portal at www.regulations.gov.

Compliance December 2, 2006

DoL Says Stock Windfall Belongs to Participants

The Department of Labor (DoL) announced it is suing the Iowa Association of Business and Industry over a stock windfall that the organization retained rather than turn over to its member companies’ benefit plans.
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According to the announcement, the dispute involves 870,393 shares in Principal Financial Group the association received when Principal converted from a mutual insurance company into a public corporation in 2001. The association’s member companies participated in a group insurance program operated by the group that provided discounts on health, life and disability benefits through Principal.

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The DoL said, based on federal employee-benefits law, the association’s program was a collection of individual company plans, which are entitled to the proceeds of the Principal stock. “The benefit plans belonging to these Iowa businesses and workers are due millions of dollars, and the department is seeking a court judgment to recover these assets for them,” said Secretary of Labor Elaine Chao, in the announcement.

The association sold the stock and the proceeds, now worth $29 million, and are held in a trust.

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