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DOL Issues Guidance on Eligible Investment Advice Arrangements under PPAd

  • January 01, 2001

The Department of Labor released Field Assistance Bulletin 2007-1 (“FAB”) late last week.  This FAB  Even though guidance with respect to eligible investment advice arrangements is not finalized, the FAB’s guidance on selection of a fiduciary advisor under such an arrangement is also useful guidance for plan sponsors and other fiduciaries with respect to selection and monitoring of other types of fiduciaries and service providers. provides guidance with respect to the statutory exception to the prohibited transaction rules under ERISA and the Code for certain participant investment advice arrangement made by the Pension Protection Act of 2006 (“PPA”).

Briefly, an “eligible investment advice arrangement” enables a plan sponsor to retain a fiduciary advisor to advise participants with respect to direction of investment under a defined contribution plan.  The arrangement must meet several requirements, and either (a) provide that any fees, commissions or other compensation received by the advisor do not vary on the basis of any investment option selected, or (b) use a computer model in connection with providing investment advice.  The DOL states that if a plan sponsor prudently selects and monitors the fiduciary advisor, then the sponsor will not be liable for the advice furnished by the advisor to the plan’s participants. 

In selecting a fiduciary advisor, the plan sponsor should consider the following:

  • the advisor’s experience and qualifications, including registration under applicable federal and/or state securities laws;
  • the advisor’s willingness to assume fiduciary status with respect to the investment advice provided to participants; and
  • the extent to which the advice will be based on generally accepted investment theories.

Under ERISA, a plan sponsor or fiduciary who appoints another fiduciary or other service provider also is responsible for ongoing monitoring of the appointment.  Ongoing monitoring should take into account the following:

  • the extent to which any information that served as the basis for initial selection of the advisor has changed;
  • whether the advisor is complying with the contractual provisions of its engagement;
  • utilization of the advisor’s services by participants in relations to the plan’s cost for such services; and
  • participant complaints and comments about the quality of the advice provided.

The FAB also makes it clear that plan assets may be used to pay reasonable expenses for providing investment advice to participants.