Interpretive Bulletin 96-1; Participant Investment Education; Final
Rule [06/11/1996]
Volume 61, Number 113, Page 29585-29590[[Page 29585]]
_______________________________________________________________________
Part II
Department of Labor
_______________________________________________________________________
Pension and Welfare Benefits Administration
_______________________________________________________________________
29 CFR Part 2509
Interpretive Bulletin 96-1; Participant Investment Education; Final
Rule
[[Page 29586]]
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Part 2509
RIN 1210-AA50
Interpretive Bulletin 96-1; Participant Investment Education
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Interpretive bulletin.
-----------------------------------------------------------------------
SUMMARY: This interpretive bulletin sets forth the views of the
Department of Labor (the Department) concerning the circumstances under
which the provision of investment-related information to participants
and beneficiaries in participant-directed individual account pension
plans will not constitute the rendering of ``investment advice'' under
the Employee Retirement Income Security Act of 1974, as amended
(ERISA). This guidance is intended to assist plan sponsors, service
providers, participants and beneficiaries in determining when
activities designed to educate and assist participants and
beneficiaries in making informed investment decisions will not cause
persons engaged in such activities to become fiduciaries with respect
to a plan by virtue of providing ``investment advice'' to plan
participants and beneficiaries for a fee or other compensation.
EFFECTIVE DATE: January 1, 1975.
FOR FURTHER INFORMATION CONTACT:
Bette J. Briggs or Teresa L. Turyn, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Ave. N.W.
Room N-5669, Washington, DC 20210, telephone (202) 219-8671, or Paul D.
Mannina, Plan Benefits Security Division, Office of the Solicitor, U.S.
Department of Labor, Washington, DC 20210, telephone (202) 219-4592.
These are not toll-free numbers.
SUPPLEMENTARY INFORMATION: In order to provide a concise and ready
reference to its interpretations of ERISA, the Department publishes its
interpretive bulletins in the Rules and Regulations section of the
Federal Register. Published in this issue of the Federal Register is
ERISA Interpretive Bulletin 96-1, which interprets section
3(21)(A)(ii), 29 U.S.C. 1002(21)(A)(ii), and the Department's
regulation issued thereunder at 29 CFR 2510.3-21(c). The Department is
publishing this interpretive bulletin because it believes there is a
need to clarify the circumstances under which the provision of
investment-related information to participants and beneficiaries will
not give rise to fiduciary status under ERISA section 3(21)(A)(ii).
(Sec. 505, Pub. L. 93-406, 88 Stat. 894 (29 U.S.C. 1135).)
Background
With the growth of participant-directed individual account pension
plans, more employees are directing the investment of their pension
plan assets and, thereby, assuming more responsibility for ensuring the
adequacy of their retirement income.* At the same time, there has been
an increasing concern on the part of the Department, employers and
others that many participants may not have a sufficient understanding
of investment principles and strategies to make their own informed
investment decisions. It has been represented to the Department that,
while a number of employers sponsoring participant-directed individual
account pension plans have instituted programs intended to educate
their employees about investment principles, financial planning and
retirement, many employers have not offered programs or offered only
limited programs due to uncertainty regarding the extent to which the
provision of investment-related information may be considered the
rendering of ``investment advice'' under section 3(21)(A)(ii) of ERISA,
resulting in fiduciary responsibility and potential liability in
connection with participant-directed investments. Although section
404(c) of ERISA, 29 U.S.C. 1104(c), and the Department's regulations,
at 29 CFR 2550.404c-1, provide limited relief from liability for
fiduciaries of pension plans that permit a participant or beneficiary
to exercise control over the assets in his or her individual account,
there remains a need for employers and others who provide investment
information with respect to pension plan assets to know what standards
apply in determining whether an education activity may give rise to
fiduciary status.
---------------------------------------------------------------------------
* Under section 3(2) of ERISA, 29 U.S.C. 1002(2), the term
``pension plan'' encompasses any plan, fund or program established
or maintained by an employer or employee organization, or by both,
to the extent that by its express terms or as a result of
surrounding circumstances, it provides retirement income to
employees or results in a deferral of income by employees for
periods extending to the termination of covered employment or
beyond. The Department notes that, for purposes of Title I of ERISA,
an employer-sponsored individual retirement account (IRA) is
considered to be an individual account pension plan. See 29 CFR
2510.3-2(d).
---------------------------------------------------------------------------
In view of the important role that investment education can play in
assisting participants and beneficiaries in making informed investment
and retirement-related decisions and the uncertainty relating to the
fiduciary implications of providing investment-related information to
participants and beneficiaries, the Department is clarifying, herein,
the application of ERISA's definition of the term ``fiduciary with
respect to a plan'' in section 3(21)(A)(ii) to the provision of
investment-related information to participants and beneficiaries.
Interpretive Bulletin 96-1 identifies categories of information and
materials regarding participant-directed individual account pension
plans that do not, in the view of the Department, constitute
``investment advice'' under the definition of ``fiduciary'' in ERISA
section 3(21)(A)(ii) and the corresponding regulation at 29 CFR 2510.3-
21(c)(1). The interpretive bulletin points out, in effect, a series of
graduated safe harbors under ERISA for plan sponsors and service
providers who provide participants and beneficiaries with four
increasingly specific categories of investment information and
materials--plan information, general financial and investment
information, asset allocation models and interactive investment
materials--as described in paragraph (d) of IB 96-1.
Comments on the Interpretive Bulletin
Interpretive Bulletin 96-1 was developed following extensive review
of educational materials currently being provided by plan sponsors and
service providers to participants. To further ensure that the guidance
provided would be helpful, and would promote increased and improved
participant education efforts, the Department also released an exposure
draft of the interpretive bulletin for public comment. The response to
the exposure draft was overwhelmingly positive. Both plan sponsor and
service provider representatives unequivocally agreed that the guidance
as drafted would strengthen participant investment education, and urged
the Department to proceed as expeditiously as possible to adopt the
interpretive bulletin. The commenters also suggested various technical
and clarifying changes which, as discussed below, have been included in
the interpretive bulletin.
Identifying Specific Investment Alternatives in Model Asset Allocations
The most frequent comment on the exposure draft concerned the safe
harbor provision in paragraphs (d)(3) (asset allocation models) and
(d)(4) (interactive investment materials) that if
[[Page 29587]]
a model asset allocation identifies or matches any specific investment
alternative available under the plan with a generic asset class, then
all investment alternatives under the plan with similar risk and return
characteristics must be similarly identified or matched. The commenters
were concerned that in plans with investment alternatives offered by
multiple service providers it would be difficult, and possibly
inappropriate, for one service provider to identify and describe a
competitor's products.
The requirement to identify other investment alternatives within an
asset class was intended to address the concern that a service provider
could effectively steer participants to a specific investment
alternative by identifying only one particular fund in connection with
an asset allocation model. Where it is possible to identify other
investment alternatives within an asset class, the Department
encourages service providers to do so. In response to the comments,
however, safe harbors (d)(3) and (d)(4) have been revised to provide
that, where an asset allocation model identifies any specific
investment alternative available under the plan, an accompanying
statement must indicate that other investment alternatives having
similar risk and return characteristics may be available under the
plan, and must identify where information on those investment
alternatives may be obtained.
The Fiduciary Safe Harbors and Section 404(c)
Several commenters requested clarification of the statement in the
exposure draft that issues relating to the circumstances under which
information provided to participants and beneficiaries may affect their
ability to exercise independent control for purposes of 404(c) are
outside the scope of the IB. The commenters were concerned that
activities which come within one of the safe harbors for participant
education may nevertheless be viewed by the Department as compromising
a participant's or beneficiary's ability to exercise independent
control under section 404(c).
Whether a participant or beneficiary has exercised independent
control over the assets in his or her individual account pursuant to
section 404(c) is necessarily a factual inquiry. In general, however,
the types of educational programs described in the safe harbors do not,
in the view of the Department, raise issues under section 404(c).
Accordingly, footnote 2 of IB 96-1 makes clear that the provision of
investment-related information and materials to participants and
beneficiaries in accordance with paragraph (d) of the IB will not, in
and of itself, affect the availability of relief from the fiduciary
responsibility provisions of ERISA that is provided by section 404(c).
Applying Asset Allocations to Individual Participants and Beneficiaries
A number of commenters asked the Department to clarify the
requirement to provide a statement that individual participants and
beneficiaries should consider their other assets, income or investments
(outside of the plan) when applying an asset allocation model or using
interactive investment materials. The commenters pointed out that, in
many instances, interactive models or materials already take into
account an individual's other assets. Accordingly, they requested
clarification that such models or materials come within the safe harbor
in paragraph (d)(4). Commenters were also concerned that given the
rationale for the safe harbor in paragraph (d)(4)--i.e. that
interactive investment models or materials enable participants and
beneficiaries independently to design and assess multiple asset
allocation models--the Department may have intended to exclude from the
safe harbors situations in which service providers assist individual
participants or beneficiaries to develop possible asset allocation
models based upon their personal financial information.
The provisions of the safe harbors are designed to ensure that
participants and beneficiaries will have adequate information to enable
them to make their own, informed asset allocation decisions. The
Department has clarified that the safe harbor in paragraph (d)(4) for
interactive investment materials would not be unavailable merely
because the asset allocation models generated by the materials take
into account a participant's or beneficiary's non-plan assets, income
and investments. Nor does the Department consider that the safe harbor
would be unavailable merely because participants and beneficiaries
receive personal assistance in developing model asset allocations. In
this regard, paragraph (d) of the IB states that providing the
categories of information identified in paragraph (d) will not in and
of itself constitute the rendering of ``investment advice''
irrespective of the form in which the materials are provided (e.g.,
whether on an individual or group basis, in writing or orally, or via
video or computer software). The interpretive bulletin also makes clear
that information and materials within each category may be furnished
alone or combined with information and materials from other categories.
For example, general financial and investment information on estimating
future retirement income needs, determining investment time horizons
and assessing risk tolerance, as described in paragraph (d)(2), may be
combined with interactive investment materials described in paragraph
(d)(4) in order to assist participants and beneficiaries to relate
basic retirement planning concepts to their individual situations.
Generally Accepted Investment Theories
Several commenters requested clarification of the requirement that
asset allocation models and interactive investment materials must be
based on ``generally accepted investment theories that take into
account the historic returns of different asset classes (e.g.,
equities, bonds, or cash) over defined periods of time.'' The
Department included this requirement to assure that, for purposes of
the safe harbors, any models or materials presented to participants or
beneficiaries will be consistent with widely accepted principles of
modern portfolio theory, recognizing the relationship between risk and
return, the historic returns of different asset classes, and the
importance of diversification.
Plan Sponsor or Fiduciary Endorsements of Service Providers
The commenters also requested clarification regarding the
circumstances in which a plan sponsor or fiduciary may be viewed as
having fiduciary responsibility by virtue of endorsing a third party
who has been selected by a participant or beneficiary to provide
participant education or investment advice. Commenters noted, for
example, that a plan sponsor may wish merely to provide office space or
make computer terminals available for use by a service provider that
has been selected by a participant or beneficiary to provide investment
education using interactive materials. Whether a plan sponsor or
fiduciary has effectively endorsed or made an arrangement with a
particular service provider is an inherently factual inquiry which
depends upon all the relevant facts and circumstances. It is the
Department's view, however, that a uniformly applied policy of
providing office space or computer terminals for use by participants or
beneficiaries who have independently selected a service provider to
provide investment
[[Page 29588]]
education would not, in and of itself, constitute an endorsement of or
arrangement with the service provider for purposes of the IB.
Participation Rates, Contribution Levels and Preretirement Withdrawals
With the objective of distinguishing between investment education
and investment advice, IB 96-1 focuses primarily on educational
activities relating to investment decision-making. However, as
suggested in a recent study by the Employee Benefits Research Institute
(EBRI), which was commissioned by the Department of Labor, plan
participants also need to be informed about the impact on retirement
savings of preretirement withdrawals and other fundamental principles
regarding plan participation and contribution levels. According to the
EBRI study, the impact of preretirement withdrawals on retirement
income is one of the least often provided topics and could have serious
consequences for the adequacy of employees' retirement income. The
Department, therefore, encourages educational service providers to
emphasize that participants should: (1) participate in available plans
as soon as they are eligible; (2) make the maximum contribution
possible to the plan; and(3) if they change employment, refrain from
withdrawing their retirement savings, and opt instead to directly
transfer or roll over their plan account into an IRA or other
retirement vehicle. Such information relating to plan participation is
specifically encompassed within the safe harbor in paragraph (d)(1) of
IB 96-1.
Application of the Investment Advisers Act of 1940
Employer sponsors of participant-directed individual account
pension plans that provide investment-related information to employees
who are participants in those plans have also raised questions
regarding their status under the Investment Advisers Act of 1940, 15
U.S.C. 80b-1 et seq., (``Advisers Act''). In this regard, the staff of
the Division of Investment Management of the Securities and Exchange
Commission (SEC) has advised the Department of Labor that, generally,
employers who provide their employees with investment information
including, but not limited to, the type described in paragraph (d) of
IB 96-1 would not be subject to registration or regulation under the
Advisers Act. This position applies only to employers who provide such
information, and not to third-party service providers, whose status
under the Adviser's Act must be determined independently. See Letters
from Jack W. Murphy, Associate Director (Chief Counsel), Division of
Investment Management, SEC, to Olena Berg, Assistant Secretary, Pension
and Welfare Benefit Administration, U.S. Department of Labor, dated
February 22, 1996, and December 5, 1995. Persons who have questions
regarding this issue are directed to contact the Office of the Chief
Counsel, Division of Investment Management, at (202) 942-0660. This is
not a toll free number.
Executive Order 12866
Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the
Department must determine whether the regulatory action is
``significant'' and therefore subject to review by the Office of
Management and Budget (OMB) and the requirements of the Executive
Order. Under section 3(f), the order defines a ``significant regulatory
action'' as an action that is likely to result in, among other things,
a rule raising novel policy issues arising out of the President's
priorities.
Pursuant to the terms of the Executive Order, the Department has
determined that this regulatory action is a ``significant regulatory
action'' as that term is used a Executive Order 12866 because the
action would raise novel policy issues arising out of the President's
priorities. Thus, the Department believes this notice is
``significant,'' and subject to OMB review on that basis. OMB has
reviewed this rule.
Paperwork Reduction Act
The regulation being issued here is not subject to the requirements
of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) because
it does not contain an ``information collection request'' as defined in
44 U.S.C. 3502 (4).
Small Business Regulatory Enforcement Fairness Act
The regulation being issued here is subject to the provisions of
the Small Business Regulatory Enforcement Fairness Act of 1996 (5
U.S.C. 801 et. seq.) and has been transmitted to Congress and the
Comptroller General for review.
List of Subjects in 29 CFR Part 2509
Employee benefits plans, Pensions.
For the reasons set forth above, Part 2509 of Title 29 of The Code
of Federal Regulations is amended as follows:
PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974
1. The authority citation for Part 2509 continues to read as
follows:
Authority: 29 U.S.C. 1135. Section 2509.75-1 is also issued
under 29 U.S.C. 1114. Sections 2509.75-10 and 2509.75-2 are also
issued under 29 U.S.C. 1052, 1053, 1054. Secretary of Labor's Order
No. 1-87 (52 FR 13139).
2. Part 2509 is amended by adding new Sec. 2509.96-1 to read as
follows:
Sec. 2509.96-1 Interpretive Bulletin Relating to Participant
Investment Education.
(a) Scope. This interpretive bulletin sets forth the Department
of Labor's interpretation of section 3(21)(A)(ii) of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), and 29
CFR 2510.3-21(c) as applied to the provision of investment-related
educational information to participants and beneficiaries in
participant-directed individual account pension plans (i.e., pension
plans that permit participants and beneficiaries to direct the
investment of assets in their individual accounts, including plans
that meet the requirements of the Department's regulations at 29 CFR
2550.404c-1).
(b) General. Fiduciaries of an employee benefit plan are charged
with carrying out their duties prudently and solely in the interest
of participants and beneficiaries of the plan, and are subject to
personal liability to, among other things, make good any losses to
the plan resulting from a breach of their fiduciary duties. ERISA
sections 403, 404 and 409, 29 U.S.C. 1103, 1104, and 1109. Section
404(c) of ERISA provides a limited exception to these rules for a
pension plan that permits a participant or beneficiary to exercise
control over the assets in his or her individual account. The
Department of Labor's regulation, at 29 CFR 2550.404c-1, describes
the kinds of plans to which section 404(c) applies, the
circumstances under which a participant or beneficiary will be
considered to have exercised independent control over the assets in
his or her account, and the consequences of a participant's or
beneficiary's exercise of such control.\1\
---------------------------------------------------------------------------
\1\ The section 404(c) regulation conditions relief from
fiduciary liability on, among other things, the participant or
beneficiary being provided or having the opportunity to obtain
sufficient investment information regarding the investment
alternatives available under the plan in order to make informed
investment decisions. Compliance with this condition, however, does
not require that participants and beneficiaries be offered or
provided either investment advice or investment education, e.g.
regarding general investment principles and strategies, to assist
them in making investment decisions. 29 CFR 2550.404c-1(c)(4).
---------------------------------------------------------------------------
With both an increase in the number of participant-directed
individual account plans and the number of investment options
available to participants and beneficiaries under such plans, there
has been an increasing recognition of the importance of providing
participants and beneficiaries,
[[Page 29589]]
whose investment decisions will directly affect their income at
retirement, with information designed to assist them in making
investment and retirement-related decisions appropriate to their
particular situations. Concerns have been raised, however, that the
provision of such information may in some situations be viewed as
rendering ``investment advice for a fee or other compensation,''
within the meaning of ERISA section 3(21)(A)(ii), thereby giving
rise to fiduciary status and potential liability under ERISA for
investment decisions of plan participants and beneficiaries.
In response to these concerns, the Department of Labor is
clarifying herein the applicability of ERISA section 3(21)(A)(ii)
and 29 CFR 2510.3-21(c) to the provision of investment-related
educational information to participants and beneficiaries in
participant directed individual account plans.\2\ In providing this
clarification, the Department does not address the ``fee or other
compensation, direct or indirect,'' which is a necessary element of
fiduciary status under ERISA section 3(21)(A)(ii).\3\
---------------------------------------------------------------------------
\2\ Issues relating to the circumstances under which information
provided to participants and beneficiaries may affect a
participant's or beneficiary's ability to exercise independent
control over the assets in his or her account for purposes of relief
from fiduciary liability under ERISA section 404(c) are beyond the
scope of this interpretive bulletin. Accordingly, no inferences
should be drawn regarding such issues. See 29 CFR 2550.404c-1(c)(2).
It is the view of the Department, however, that the provision of
investment-related information and material to participants and
beneficiaries in accordance with paragraph (d) of this interpretive
bulletin will not, in and of itself, affect the availability of
relief under section 404(c).
\3\ The Department has expressed the view that, for purposes of
section 3(21)(A)(ii), such fees or other compensation need not come
from the plan and should be deemed to include all fees or other
compensation incident to the transaction in which the investment
advise has been or will be rendered. See A.O. 83-60A (Nov. 21,
1983); Reich v. McManus, 883 F. Supp. 1144 (N.D. Ill. 1995).
---------------------------------------------------------------------------
(c) Investment Advice. Under ERISA section 3(21)(A)(ii), a
person is considered a fiduciary with respect to an employee benefit
plan to the extent that person ``renders investment advice for a fee
or other compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any authority to do so
* * *.'' The Department issued a regulation, at 29 CFR 2510.3-21(c),
describing the circumstances under which a person will be considered
to be rendering ``investment advice'' within the meaning of section
3(21)(A)(ii). Because section 3(21)(A)(ii) applies to advice with
respect to ``any moneys or other property'' of a plan and 29 CFR
2510.3-21(c) is intended to clarify the application of that section,
it is the view of the Department of Labor that the criteria set
forth in the regulation apply to determine whether a person renders
``investment advice'' to a pension plan participant or beneficiary
who is permitted to direct the investment of assets in his or her
individual account.
Applying 29 CFR 2510.3-21(c) in the context of providing
investment-related information to participants and beneficiaries of
participant-directed individual account pension plans, a person will
be considered to be rendering ``investment advice,'' within the
meaning of ERISA section 3(21)(A)(ii), to a participant or
beneficiary only if: (i) the person renders advice to the
participant or beneficiary as to the value of securities or other
property, or makes recommendations as to the advisability of
investing in, purchasing, or selling securities or other property
(2510.3-21(c)(1)(i); and (ii) the person, either directly or
indirectly, (A) has discretionary authority or control with respect
to purchasing or selling securities or other property for the
participant or beneficiary (2510.3-21(c)(1)(ii)(A)), or (B) renders
the advice on a regular basis to the participant or beneficiary,
pursuant to a mutual agreement, arrangement or understanding
(written or otherwise) with the participant or beneficiary that the
advice will serve as a primary basis for the participant's or
beneficiary's investment decisions with respect to plan assets and
that such person will render individualized advice based on the
particular needs of the participant or beneficiary (2510.3-
21(c)(1)(ii)(B)).\4\
---------------------------------------------------------------------------
\4\ This IB does not address the application of 29 CFR 2510.3-
21(c) to communications with fiduciaries of participant-directed
individual account pension plan plans.
---------------------------------------------------------------------------
Whether the provision of particular investment-related
information or materials to a participant or beneficiary constitutes
the rendering of ``investment advice,'' within the meaning of 29 CFR
2510.3-21(c)(1), generally can be determined only by reference to
the facts and circumstances of the particular case with respect to
the individual plan participant or beneficiary. To facilitate such
determinations, however, the Department of Labor has identified, in
paragraph (d), below, examples of investment-related information and
materials which if provided to plan participants and beneficiaries
would not, in the view of the Department, result in the rendering of
``investment advice'' under ERISA section 3(21)(A)(ii) and 29 CFR
2510.3-21(c).
(d) Investment Education. For purposes of ERISA section
3(21)(A)(ii) and 29 CFR 2510.3-21(c), the Department of Labor has
determined that the furnishing of the following categories of
information and materials to a participant or beneficiary in a
participant-directed individual account pension plan will not
constitute the rendering of ``investment advice,'' irrespective of
who provides the information (e.g., plan sponsor, fiduciary or
service provider), the frequency with which the information is
shared, the form in which the information and materials are provided
(e.g., on an individual or group basis, in writing or orally, or via
video or computer software), or whether an identified category of
information and materials is furnished alone or in combination with
other identified categories of information and materials.
(1) Plan Information. (i) Information and materials that inform
a participant or beneficiary about the benefits of plan
participation, the benefits of increasing plan contributions, the
impact of preretirement withdrawals on retirement income, the terms
of the plan, or the operation of the plan; or
(ii) information such as that described in 29 CFR 2550.404c-
1(b)(2)(i) on investment alternatives under the plan (e.g.,
descriptions of investment objectives and philosophies, risk and
return characteristics, historical return information, or related
prospectuses).\5\
---------------------------------------------------------------------------
\5\ Descriptions of investment alternatives under the plan may
include information relating to the generic asset class (e,g,,
equities, bonds, or cash) of the investment alternatives. 29 CFR
2550.404c-1(b)(2)(i)(B)(1) (ii).
---------------------------------------------------------------------------
The information and materials described above relate to the plan
and plan participation, without reference to the appropriateness of
any individual investment option for a particular participant or
beneficiary under the plan. The information, therefore, does not
contain either ``advice'' or ``recommendations'' within the meaning
of 29 CFR 2510.3-21(c)(1)(i). Accordingly, the furnishing of such
information would not constitute the rendering of ``investment
advice'' for purposes of section 3(21)(A)(ii) of ERISA.
(2) General Financial and Investment Information. Information
and materials that inform a participant or beneficiary about: (i)
General financial and investment concepts, such as risk and return,
diversification, dollar cost averaging, compounded return, and tax
deferred investment; (ii) historic differences in rates of return
between different asset classes (e.g., equities, bonds, or cash)
based on standard market indices; (iii) effects of inflation; (iv)
estimating future retirement income needs; (v) determining
investment time horizons; and (vi) assessing risk tolerance.
The information and materials described above are general
financial and investment information that have no direct
relationship to investment alternatives available to participants
and beneficiaries under a plan or to individual participants or
beneficiaries. The furnishing of such information, therefore, would
not constitute rendering ``advice'' or making ``recommendations'' to
a participant or beneficiary within the meaning of 29 CFR 2510.3-
21(c)(1)(i). Accordingly, the furnishing of such information would
not constitute the rendering of ``investment advice'' for purposes
of section 3(21)(A)(ii) of ERISA.
(3) Asset Allocation Models. Information and materials (e.g.,
pie charts, graphs, or case studies) that provide a participant or
beneficiary with models, available to all plan participants and
beneficiaries, of asset allocation portfolios of hypothetical
individuals with different time horizons and risk profiles, where:
(i) Such models are based on generally accepted investments theories
that take into account the historic returns of different asset
classes (e.g., equities, bonds, or cash) over define periods of
time; (ii) all material facts and assumptions on which such models
are based (e.g., retirement ages, life expectancies, income levels,
financial resources, replacement income ratios, inflation rates, and
rates of return) accompany the models; (iii) to the extent that an
asset allocation model identifies any specific investment
alternative available under the plan, the
[[Page 29590]]
model is accompanied by a statement indicating that other investment
alternatives having similar risk and return characteristics may be
available under the plan and identifying where information on those
investment alternatives may be obtained; and (iv) the asset
allocation models are accompanied by a statement indicating that, in
applying particular asset allocation models to their individual
situations, participants or beneficiaries should consider their
other assets, income, and investments (e.g., equity in a home, IRA
investments, savings accounts, and interests in other qualified and
non-qualified plans) in addition to their interests in the plan.
Because the information and materials described above would
enable a participant or beneficiary to assess the relevance of an
asset allocation model to his or her individual situation, the
furnishing of such information would not constitute a
``recommendation'' within the meaning of 29 CFR 2510.3-21(c)(1)(i)
and, accordingly, would not constitute ``investment advice'' for
purposes of section 3(21)(A)(ii) of ERISA. This result would not, in
the view of the Department, be affected by the fact that a plan
offers only one investment alternative in a particular asset class
identified in an asset allocation model.
(4) Interactive Investment Materials. Questionnaires,
worksheets, software, and similar materials which provide a
participant or beneficiary the means to estimate future retirement
income needs and assess the impact of different asset allocations on
retirement income, where: (i) Such materials are based on generally
accepted investment theories that take into account the historic
returns of different asset classes (e.g., equities, bonds, or cash)
over defined periods of time; (ii) there is an objective correlation
between the asset allocations generated by the materials and the
information and data supplied by the participant or beneficiary;
(iii) all material facts and assumptions (e.g., retirement ages,
life expectancies, income levels, financial resources, replacement
income ratios, inflation rates, and rates of return) which may
affect a participant's or beneficiary's assessment of the different
asset allocations accompany the materials or are specified by the
participant or beneficiary; (iv) to the extent that an asset
allocation generated by the materials identifies any specific
investment alternative available under the plan, the asset
allocation is accompanied by a statement indicating that other
investment alternatives having similar risk and return
characteristics may be available under the plan and identifying
where information on those investment alternatives may be obtained;
and (v) the materials either take into account or are accompanied by
a statement indicating that, in applying particular asset
allocations to their individual situations, participants or
beneficiaries should consider their other assets, income, and
investments (e.g., equity in a home, IRA investments, savings
accounts, and interests in other qualified and non-qualified plans)
in addition to their interests in the plan.
The information provided through the use of the above-described
materials enables participants and beneficiaries independently to
design and assess multiple asset allocation models, but otherwise
these materials do not differ from asset allocation models based on
hypothetical assumptions. Such information would not constitute a
``recommendation'' within the meaning of 29 CFR 2510.3-21(c)(1)(i)
and , accordingly, would not constitute ``investment advice'' for
purposes of section 3(21)(A)(ii) of ERISA.
The Department notes that the information and materials
described in subparagraphs (1)-(4) above merely represent examples
of the type of information and materials which may be furnished to
participants and beneficiaries without such information and
materials constituting ``investment advice.'' In this regard, the
Department recognizes that there may be many other examples of
information, materials, and educational services which, if furnished
to participants and beneficiaries, would not constitute ``investment
advice.'' Accordingly, no inferences should be drawn from
subparagraphs (1)-(4), above, with respect to whether the furnishing
of any information, materials or educational services not described
therein may constitute ``investment advice.'' Determinations as to
whether the provision of any information, materials or educational
services not described herein constitutes the rendering of
``investment advice'' must be made by reference to the criteria set
forth in 29 CFR 2510. 3-21(c)(1).
(e) Selection and Monitoring of Educators and Advisors. As with
any designation of a service provider to a plan, the designation of
a person(s) to provide investment educational services or investment
advice to plan participants and beneficiaries is an exercise of
discretionary authority or control with respect to management of the
plan; therefore, persons making the designation must act prudently
and solely in the interest of the plan participants and
beneficiaries, both in making the designation(s) and in continuing
such designation(s). See ERISA sections 3(21)(A)(i) and 404(a), 29
U.S.C. 1002 (21)(A)(i) and 1104(a). In addition, the designation of
an investment advisor to serve as a fiduciary may give rise to co-
fiduciary liability if the person making and continuing such
designation in doing so fails to act prudently and solely in the
interest of plan participants and beneficiaries; or knowingly
participates in, conceals or fails to make reasonable efforts to
correct a known breach by the investment advisor. See ERISA section
405(a), 29 U.S.C. 1105(a). The Department notes, however, that, in
the context of an ERISA section 404(c) plan, neither the designation
of a person to provide education nor the designation of a fiduciary
to provide investment advice to participants and beneficiaries
would, in itself, give rise to fiduciary liability for loss, or with
respect to any breach of part 4 of title I of ERISA, that is the
direct and necessary result of a participant's or beneficiary's
exercise of independent control. 29 CFR 2550.404c-1(d). The
Department also notes that a plan sponsor or fiduciary would have no
fiduciary responsibility or liability with respect to the actions of
a third party selected by a participant or beneficiary to provide
education or investment advice where the plan sponsor or fiduciary
neither selects nor endorses the educator or advisor, nor otherwise
makes arrangements with the educator or advisor to provide such
services.
Signed at Washington, DC, this 30th day of May, 1996.
Olena Berg,
Assistant Secretary, Pension and Welfare, Benefits Administration, U.S.
Department of Labor.
[FR Doc. 96-14093 Filed 6-10-96; 8:45 am]
BILLING CODE 4510-29-M
|
