November 2011

Department of Labor Issues Final Rules on Participant Advice

A Polsinelli Shughart Update

With changes brought about by the Pension Protection Act of 2006 (PPA), coupled with final regulations issued by the Employee Benefits Security Administration (EBSA) on October 21, 2011 that create exemptions to the prohibited transaction rules, fiduciary investment advisors will now be able to receive fees from investment providers whose products are recommended to participants. This allows employers greater flexibility in choosing advisors and gives them the ability to provide better quality advice to participants.

The prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986, as amended (Code) generally prohibit a "fiduciary" from dealing with the assets of a tax-qualified retirement plan in his own interest. As a result, employer/plan sponsors were unable to make investment advice available to plan participants through certain investment advisors if those advisors received direct or indirect compensation from the investment vehicles for which their advice was given, which is a common arrangement.

The final regulations issued by EBSA require that the investments advisors adhere to newly created safeguards that are designed to prevent the advisor from manipulating their advice for their own financial benefit. These regulations will go into effect and will be applicable to all transactions occurring on or after December 27, 2011.

What You Should Do Now

Employer/plan sponsors should re-evaluate the investment advice offered to plan participants to determine what, if any, new opportunities for enhanced investment advice are available as a result of these final regulations. They should also obtain evidence from potential advisors that an exemption applies or seek legal counsel regarding the application of an exemption.

To read more on the final regulations, click [ here ].

For More Information

For further guidance on prohibited transaction or participant investment advice rules, contact any member of the Employee Benefits & Executive Compensation practice group.

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