Morgan Lewis
January 26, 2009
This Alert reviews final regulations from the Department of Labor which establish several exemptions to rules that otherwise prevent fiduciaries of pension plans from giving financial advice to participants in participant-directed individual account plans such as 401(k) plans and individual retirement accounts. Under the new rules, which are intended to ensure objectivity and remove financial conflicts of interest, investment advice will generally be permitted by a “fiduciary adviser” if provided  through the use of an unbiased computer model or by an adviser that is compensated on a “fee-level” basis (ie where fees do not vary regardless of investment options chosen by a participant). The final regulations also include a class exemption which would permit further individualized investment advice to be given to participants and beneficiaries in participant-directed individual account plans and IRA beneficiaries following the furnishing of recommendations generated by a computer model or, as with IRAs where modeling is not possible, the provision of certain investment education material.

The Alert notes that the rules, which are supposed to become effective March 23, 2009, are caught up in a general request from the new administration that heads of executive departments and agencies consider a 60-day extension and a reopening of the comment period for regulations that have been published in the Federal Register but are not yet effective. This may result in a postponement of the effective date until May 23, 2009.