If your company is among the nearly 70% of firms that offer investment advice, you’ll want to take a close look at these rules.
The DOL’s Employee Benefits Security Administration (EBSA) just issued its final rule on investment advice for defined-contribution plan participants.
It goes into effect on December 27, 2011.
The final rule spells out scenarios in which investment advice can be provided to 401(k) participants without violating the prohibited transaction rules that are part of the Pension Protection Act of 2006.
Essentially, it states that 401(k) plans can offer advice to plan participants in two ways:
- from a third-party (as long as the third party receives a level – or flat – fee that doesn’t change based on investment choices), and
- from a computer model that is certified as an unbiased independent expert.
Whether a plan-sponsor uses a third-party or computer model, the organization, computer model or persons providing the advice must use generally accepted investment theories that are based on historical risks and the performance of different asset classes over a defined time frame.
The DOL’s final rule also listed a number of criteria the entity providing investment advice must ask 401(k) participants about and take into account.
This includes the participants’:
- life expectancy
- retirement age
- risk tolerance and investment preferences
- current investments, and
- other assets and sources of income.
You can view the official DOL rule right here.