DOL issues final rule on 401(k) investment advice exemptions
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WASHINGTON—The Department of Labor on Monday finalized a rule spelling out permissible scenarios for giving investment advice to 401(k) plan participants without running afoul of prohibited transaction rules.
The rule, which will goes into effect in 60 days, allows for providing investment advice under one of two scenarios: through the use of a computer model certified as unbiased, or through an adviser paid a “level,” or flat, fee that does not change based on investment choices.
The exemptions were dictated by the Pension Protection Act of 2006 as a way to make quality investment advice more widely available to participant-directed retirement savings plans and individual retirement accounts. The DOL estimates that, as of 2007, more than half of private-sector employees participate in defined contribution plans representing $3 trillion in assets.
When the DOL proposed the rule in March 2010, the Employee Benefits Security Administration noted that it “continues to believe that DC plan participants and IRA beneficiaries often make costly investment errors” because advisers are reluctant to get involved. Clarifying situations that make such advice acceptable could lead to $6 billion in improved investment results after accounting for the cost of the advice, according to DOL estimates.
“We hope and anticipate that the Department of Labor's final rule will provide clarity…and appropriately expand access for American retirement savers to qualified investment advice, including by enabling retirement plans and sponsors to offer new investment advice programs,” an Investment Company Institute spokeswoman said in an email.
This is the DOL's second attempt to issue the rules, which were first issued in January 2009 but withdrawn later that year over concerns that safeguards against adviser self-dealing were not strong enough.
Hazel Bradford is a reporter at Pensions & Investments, a sister publication of Business Insurance.
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