ERISA Advisory - Labor Department Issues But Then Proposes to Delay Effective Date of Final Regulation Addressing Provision of Investment Advice to Participants and Beneficiaries of Self-Directed Individual Account Plans

On Friday, January 21, 2009, the Department of Labor published in the Federal Register a final rule relating to the provision of investment advice to participants and beneficiaries of self-directed individual account plans (“IAPs”) and individual retirement accounts (“IRAs”) (collectively, “Plans”).  The final rule has two components:

• a regulation implementing the statutory “eligible investment advice arrangement” exemption in ERISA §§ 408(b)(14) and (g) and the parallel provisions in Code §§ 4975(d)(17) and (f)(8) (collectively, the “Statutory Exemption”); and
• an administrative class exemption supplementing the relief provided by the Statutory Exemption (“Class Exemption”).

These exemptions provide relief from the prohibitions of ERISA § 406 and Code § 4975 for three transactions:

• the provision of investment advice to Plan participants and beneficiaries by a fiduciary adviser;
• the investment transactions entered into in reliance on the advice; and
• the receipt of fees by the fiduciary adviser in connection with such investment advice or transactions.

The final rule is effective on March 23, 2009, and is applicable to covered transactions occurring on or after that date.  As a result of the change of administrations, however, the rule’s effective date may be delayed.  On January 20, 2009, the day before the rule’s publication in the Federal Register, Rahm Emanuel, White House Chief of Staff, sent a memorandum (“Emanuel Memo”) to all agency heads asking, among other things, that they consider extending the effective date of any regulations published in the Federal Register that have not yet taken effect.  The stated purpose of the requested extension is to give the Obama administration an opportunity to review “questions of law and policy” raised by the regulations.  In order to extend an already published effective date, the White House directive would require that the agency immediately reopen the notice and comment period for 30 days to allow interested parties to comment on any such issues of law and policy.

Today, in response to the Emanuel Memo, the DOL published in the Federal Register a proposal to extend for 60 days the effective date and the applicability date of the final rule to allow public comment on whether it raises significant policy and legal issues.  Comments on the proposal to extend the final rule’s effective date must be submitted by February 18, 2009.  At the same time, the DOL is also soliciting comments on issues of law and policy raised by the rule and whether it should allow the rule to take effect, issue a further extension, withdraw the rule, or propose that the rule be amended.  Comments on any such issues of law and policy must be submitted by March 6, 2009.  Leading Democrats, including House Education and Labor Committee Chairman George Miller (D-Cal.), have expressed strong opposition to the rule.  Congressional comments on the proposed rule can be found at www.dol.gov/ebsa/pdf/cmt-10170824-ex.pdf and www.dol.gov/ebsa/pdf/cmt-10170830-ex.pdf.

This memorandum will summarize briefly the key provisions of the final rule.  Since we have already circulated an advisory addressing the proposed rules (click here for that ), we will focus this advisory on the changes that were included in the final rule in response to public comments.

General Scope of the Final Rule

Unlike the proposed rules, which included a proposed regulation and a separate proposed class exemption, the final rule incorporates both within a single regulation.  The Statutory Exemption is set forth in paragraph (b) and the Class Exemption is set forth in paragraph (d) of the final rule. Why the DOL decided to imbed a class exemption in a regulation and whether that format has implications for the use of the Class Exemption is unclear.  The cross-referencing of definitions and other requirements in the Class Exemption is a bit awkward, requiring that a user have the regulation at hand when trying to understand the requirements of the Class Exemption.  It is also unusual that the Class Exemption will have no number, unlike other administrative class exemptions.

In response to public comments, the DOL clarified that nothing in the final rule establishes an obligation on the part of plans or plan sponsors to provide investment advice.  The DOL also clarified that the rule’s requirements apply only to investment advice arrangements that involve prohibited transactions, and that the Statutory Exemption does not affect any prior guidance concerning the circumstances under which the provision of investment advice would constitute a prohibited transaction.  That, of course, is consistent with FAB 2007-1 (Feb. 2, 2007), which confirmed that the DOL’s prior guidance on pre-Pension Protection Act (“PPA”) methods of structuring advice programs around the prohibitions of ERISA § 406(b) remains effective.

The three main types of pre-PPA investment advice programs that can be utilized to avoid a prohibited transaction, and thus obviate the need to comply with the requirements of the final rule, are as follows:

• programs structured to provide only non-fiduciary “investment education” in accordance with Interpretive Bulletin 96-1, 29 C.F.R. § 2509.96-1;
• programs structured, through fee leveling or offsets, to ensure that the adviser’s fees do not vary with the advice provided, see Adv. Op. 97-15A (May 22, 1997) and Adv. Op. 2005-10A (May 11, 2005); and
• programs structured to provide financial advice through the application of methodologies developed and maintained by a third party who is independent of the fiduciary investment adviser, see Adv. Op. 2001-09A (Dec. 14, 2001).

Each of these methods of attempting to avoid a prohibited transaction has its own limitations.  The line between investment “education” and “advice” is not always clear, and participants often want “advice” rather than just “education.”  Even when information provided to participants is intended to be “education” rather than “advice,” a prohibited transaction may result if the line between the two is inadvertently crossed.

Fee leveling programs under prior law were required to ensure not only that the fiduciary adviser’s fees do not vary with the advice provided, but also that the revenues received by the adviser’s affiliates do not vary with the advice provided.  Few advice programs utilized fee-leveling to provide broadly disseminated advice because the fee-leveling approach essentially required a fiduciary adviser to exclude any affiliated products from the program.  Congress itself recognized in enacting ERISA that it would be unreasonable to require financial institutions to avoid their own products when providing services to plans.  See H.R. Conf. Rep. No. 93-1280 (Aug. 12, 1974), reprinted in 1974 U.S.C.C.A.N. 5038, 5094.

Programs providing investment advice through independently developed and maintained methodologies may be challenged if the output of the methodology can somehow be changed or affected by input from the program sponsor.  In other words, any recommendations provided to participants must be based solely on input of participant information into a computer program utilizing the independently developed and maintained methodologies.  The effect of this restriction is to prohibit so-called “off-model” advice.

Compliance with the requirements of the Statutory Exemption and/or the Class Exemption offers the fiduciary adviser, Plan sponsor and other Plan fiduciaries assurance that ERISA and the Code will not be violated by the provision of investment advice to Plan participants and beneficiaries.  Regarding the general scope of relief, the DOL clarified that the Statutory Exemption and the Class Exemption both cover extensions of credit and similar transactions necessary for efficient execution and settlement of securities trades.  We assume the exemption also covers other extensions of credit to parties in interest and fiduciaries inherent in the holding of debt instruments issued by parties in interest, since the language of the exemption provides broad relief from the prohibitions of ERISA §§ 406(a) and (b).

DOL also confirmed that the provision of investment advice for purposes of the Statutory Exemption and Class Exemption includes recommending investment managers to participants and beneficiaries.  This clarification is important for two reasons.  First, many had argued based on the literal language of ERISA § 3(21) that advice regarding manager selection rather than security selection was not fiduciary advice within the meaning of § 3(21).  The DOL rejects that view in the preamble, stating it has always been its view that advice regarding manager selection is fiduciary advice within the meaning of § 3(21), without citing any authority for that position.  The clarification is also important because it will allow manager of manager programs which had been cast as investment education and assistance rather than advice to actually provide real recommendations and advice to participants.  We discuss below the Statutory Exemption and Class Exemption as adopted in the final rule.       

The Statutory Exemption

Paragraph (b) of the final rule addresses the requirements of the Statutory Exemption.  Like the proposed regulation, paragraph (b) of the final rule reiterates and expands upon the definition of “eligible investment advice arrangement” (“Eligible Arrangement”) under ERISA § 408(g) and Code § 4975(f)(8).  An Eligible Arrangement may be one that uses fee leveling or computer models or both.

Fee-leveling Arrangements.  The final rule requires that fee-leveling arrangements meet the following conditions, among others:

• The advice must be based on generally accepted investment theories that, at a minimum, take into account historic returns of different asset classes over defined periods of time;
• The advice must take into account investment management and other fees and expenses attendant to the recommended investments;
• The advice must take into account, at a minimum, information furnished by a participant or beneficiary relating to age, time horizons (e.g., life expectancy, retirement age), risk tolerance, current investments in designated investment options, other assets or sources of income, and investment preferences;
• Any fees or other compensation (including salary, bonuses, awards, promotions, commissions or other things of value) received, directly or indirectly, by any employee, agent or registered representative that provides investment advice on behalf of a fiduciary adviser must not vary depending on the investment option selected by a participant or beneficiary; and
• Any fees (including any commission or other compensation) received by the fiduciary adviser for investment advice or in connection with the investment of plan assets must not vary depending on the investment option selected by a participant or beneficiary.

As the italicized language reflects, the level fee conditions of the Statutory Exemption apply not only to any employee, agent or registered representative who provides advice on the fiduciary adviser’s behalf, but also to the fiduciary adviser itself.  Significantly, however, these conditions do not apply to fees or other compensation received by affiliates of the fiduciary adviser (as long as the affiliates do not provide advice to the plan or IRA).  The final rule thus provides relief for certain level fee arrangements that would otherwise result in prohibited transactions under the DOL’s pre-PPA guidance.

Of course, this limited relaxation of the fee-leveling requirement may not facilitate the provision of investment advice by some types of financial services firms, such as broker-dealers, because it would require an entirely different corporate structure from that typical of such firms (e.g., advisers in a different corporation than executing brokers).  Under the Statutory Exemption’s fee-leveling requirements, neither the broker-dealer’s nor the registered representative’s total fees from investment products or transactions can vary.  To meet this requirement, all commissions and all markups or markdowns on currency or fixed income securities would have to be offset from the advisory fee or the advisory personnel could not also be brokers.  Few if any broker-dealers likely would be able to implement cost-effectively these types of arrangements.

A notable change from the proposed regulation is the requirement that the advice take into account investment management and other fees attendant to the recommended investments.  The DOL added this requirement to the final rule in response to a commenter’s recommendation.  Given the DOL’s regulatory efforts to enhance consideration of investment-related fees and expenses by plan fiduciaries, participants and beneficiaries, the DOL believed it would be reasonable to expect fiduciary advisers and their computer models to take such fees and expenses into account in providing investment advice to plan participants and beneficiaries and IRA beneficiaries.  As discussed below, the DOL added the same condition to the final rule’s requirements for computer model arrangements.

In response to a commenter’s request for clarification of the level fee condition applicable to employees, agents or registered representatives providing advice on a fiduciary adviser’s behalf, the DOL explained that the term “other things of value” would include “trips, gifts and other things that while having a value, are not given in the form of cash.”  The reference to bonuses, awards and promotions in this level fee condition deserves particular attention.  With respect to bonus programs based on a fiduciary adviser’s overall profitability, the DOL stated that “almost every form of remuneration that takes into account the investments selected by participants and beneficiaries would likely violate the fee-leveling requirement.”  It acknowledged that such a program “may be permissible to the extent that it can be established that the individual account plan and IRA investment advice and investment option components were excluded from, or constituted a negligible portion of the [fiduciary adviser’s] profitability.”

Of course, requiring that such programs exclude revenue from IAPs and IRAs is contrary to business practice – registered representatives are paid and promoted based on all sales, not just sales resulting from fiduciary investment advice.  If broker-dealers are required to exclude all revenues from sales to IAP and IRA customers from any bonus, award or promotion decision, registered representatives may decline to give advice to such customers because their opportunities for advancement are greater with other customers.

Computer Model Arrangements.   The final rule requires that a computer model arrangement be designed and operated to meet the following conditions, among others:

• The model must apply generally accepted investment theories that, at a minimum, take into account historic returns of different asset classes over defined periods of time;
• The model must take into account investment management and other fees and expenses attendant to the recommended investments;
• The model must take into account, at a minimum, information furnished by a participant or beneficiary relating to age, time horizons (e.g., life expectancy, retirement age), risk tolerance, current investments in designated investment options, other assets or sources of income, and investment preferences;
• The model must utilize appropriate objective criteria to provide asset allocation portfolios comprised of investment options available under the plan;
• The model must avoid recommendations that inappropriately favor options (i) offered by the fiduciary adviser or a person with a material contractual relationship with the fiduciary adviser or (ii) that may generate greater income for the fiduciary adviser or a person with a material contractual relationship with the fiduciary adviser.
• With certain exceptions discussed below, the model must take into account all “designated investment options” available under the plan without giving inappropriate weight to any investment option.

Because the term “designated investment option” is defined to exclude brokerage windows and self-directed brokerage accounts, such features are excluded from the requirement that the model take into account all designated investment options available under the plan.  As in the proposed regulation, the final rule’s requirement that the computer model take into account all designated investment options includes an exception for options invested primarily in employer securities. The DOL also included exceptions in the final rule for (i) investment funds, products or services that allocate the assets of a participant or beneficiary to achieve varying degrees of long-term appreciation and capital preservation through equity and fixed income exposures based on a defined time horizon or level of risk of the participant or beneficiary (e.g., managed accounts, target date or life-cycle funds), and (ii) annuity options under which a participant or beneficiary may allocate assets toward the purchase of a stream of retirement income payments guaranteed by an insurance company.  In both cases, the participant or beneficiary nevertheless must be furnished a general description of the investments and how they operate

In response to public comments, the DOL indicated in the preamble to the final rule that the computer model must take into account the fact that a participant has investments in qualifying employer securities when giving advice concerning the investment of their remaining assets, unless a participant specifically elects not to have such investments factored into the modeled advice or fails to provide such information.  Similarly, the DOL indicated that the model must take into account investments in “legacy options” in which participants are no longer permitted to invest when giving advice concerning the investment of the participants’ remaining assets, unless a participant elects not to have such investments taken into account.  Although the DOL did not state specifically that “legacy options” need not be taken into account if a participant fails to provide the information, it did state that investments in qualifying employer securities need not be taken if the participant fails to provide that information. There would appear to be little reason why the outcome should be any different for “legacy options.”

Like the proposed regulation, the final rule requires that a qualified, independent expert certify that a computer model (and any subsequent modification) meets the foregoing requirements prior to its utilization.  The DOL indicated in the preamble that, in performing the certification, the independent expert would not be acting as a fiduciary or “handling” plan assets such that the bonding requirements would be applicable to the expert.

General Conditions Applicable to Both Types of Arrangements. 

(1)  Fiduciary Authorization.  Consistent with ERISA § 408(g), Code § 4975(f)(8) and the proposed regulation, the final rule requires that an independent plan fiduciary expressly authorize the arrangement.  Like the proposed regulation, the final rule makes clear that, in the case of an IRA, this express authorization must be provided by the IRA beneficiary.  The final rule provides further that IRA beneficiaries will not fail the independence requirement merely because they are employed by the adviser, thus enabling IRA beneficiaries to take advantage of investment advice arrangements offered by their employers. 

In response to public comments, the DOL modified the authorization provisions of the proposed regulation so that the final rule permits a fiduciary adviser to provide investment advice to its own employees (or employees of an affiliate) under the exemption, if the fiduciary adviser or affiliate offers the same arrangement to participants and beneficiaries of unaffiliated plans in the ordinary course of its business.  The DOL cautioned, however, that the final rule provides no relief for the selection of the adviser or the investment advice arrangement if the adviser is charging the plan an advisory fee.  The fiduciaries must act prudently in making their selection and cannot use their position to benefit themselves in violation of ERISA § 406(b).  In this regard, the DOL observed that a fiduciary’s selection of itself to provide investment advice would not constitute fiduciary self-dealing in violation of § 406(b) if the fiduciary provides advice to the plan without the receipt of compensation or other consideration (other than reimbursement of direct expenses properly and actually incurred).

In the final rule, the DOL also modified the authorization provisions of the proposed regulation to make clear that an authorizing plan sponsor-fiduciary would not fail the independence requirement simply because the plan for which the arrangement is being authorized offers participants the opportunity to invest in qualifying employer securities.   

(2)  Annual Audit.  Like the proposed regulation, the final rule requires that the fiduciary adviser engage an independent auditor at least annually to conduct a compliance audit of the investment advice arrangement and, within 60 days after completion of the audit, issue a written report to the fiduciary adviser and each authorizing fiduciary.  The final rule also adopts the proposed special notice rule for IRAs, requiring that the fiduciary adviser, within 30 days following receipt of the report from the auditor, furnish a copy of the report to the IRA beneficiary or make the report available on its website.  In the case of arrangements involving IRAs, the final rule also requires the fiduciary adviser to send to the DOL a copy of any audit report identifying instances of noncompliance.

In response to public comments, the DOL indicated that a fiduciary adviser must act prudently in selecting the independent auditor, but clarified that the auditor need not be an accountant or a lawyer and that there is not “one set of credentials, such as certified public accountant, auditor, or lawyer, that is required or, conversely, by themselves qualifies an individual to conduct the required audits.”  Regarding the independence requirement, the DOL confirmed that an auditor would not lose its independence merely by certifying computer models or performing other services for the fiduciary adviser, as long as the auditor receives no more than 10% of its revenue from the adviser.  As for the scope of the audit, the DOL indicated that the nature and scope of the audit, as well as how it will be conducted (including whether sampling will be conducted at the adviser level or the plan level) is to be determined by the auditor.  The DOL also confirmed that the performance of the audit would not, by itself, cause the auditor to be a fiduciary under ERISA.

(3)  Disclosure.  The final rule, like the proposal, requires that the fiduciary adviser provide to participants and beneficiaries without charge, prior to the initial provision of investment advice and annually thereafter, a written notification describing, among other things, fees and other compensation received, relationships among relevant parties, the fiduciary status of the adviser, the services/products being offered and product limitations and availability of other advisers.  The adviser must furnish written notification of material changes to this information at a time reasonably contemporaneous with the change.  The adviser also must furnish the information without charge to the recipient of the advice upon request.

In response to a request for clarification, the DOL indicated that the required disclosure of fees and compensation was not limited to designated investment options, but included any fees and compensation received in connection with investments made through open brokerage windows and directed brokerage accounts.  Following another suggestion by commenters, the DOL added a specific provision requiring the disclosure of all fees or other compensation that a fiduciary adviser or any affiliate might receive in connection with any rollover or other distribution or the investment of distributed assets in any security or other property pursuant to the advice.  In adopting this provision, the DOL emphasized the “potential for abuse in this area” and reiterated its view that advice concerning the taking of a distribution or investment of withdrawn amounts would constitute the exercise of discretion over management of the plan if the person is already acting in another fiduciary capacity with respect to the plan.  Thus, a fiduciary may engage in self-dealing in violation of ERISA § 406(b)(1) if it exercises control over plan assets to cause a participant to take a distribution and invest the proceeds in an IRA managed by the fiduciary.  The DOL further suggested that the mere disclosure of fees received in connection with such a distribution and investment would be insufficient to avoid a fiduciary self-dealing violation.  

The final rule includes a revised model disclosure form that takes into account changes from the proposed rule.  The DOL also confirmed in the preamble that disclosure materials required under securities and other laws may be used for purposes of complying with the exemptions as long as their use does not compromise the understandability and clarity of the disclosures.  

(4)  Other Conditions.  Consistent with ERISA § 408(g), Code § 4975(f)(8) and the proposed regulation, the final rule incorporates the following miscellaneous conditions for relief:  (a) the fiduciary adviser must provide appropriate disclosure in accordance with all applicable securities laws; (b) the sale, acquisition, or holding of a security must occur solely at the direction of the recipient of the advice; (c) the compensation received by the fiduciary adviser and its affiliates in connection with the sale, acquisition, or holding of the security must be reasonable; and (d) the terms of the sale, acquisition, or holding must be at least as favorable to the plan as an arm’s length transaction would be.

In response to public comments, the DOL confirmed in the preamble that a pre-authorization for a fiduciary adviser to maintain a particular asset allocation structure by periodically rebalancing investments will not violate the “solely at the direction” requirement, provided the participant is informed of and approves the specific circumstances under which a rebalancing will take place and the particular investments that will be utilized for the rebalancing.  However, if the particular investments that might be selected for purposes of rebalancing are not known at the time of the authorization, the DOL indicated that the participant must be given advance notice of the investments selected and a reasonable opportunity (at least 30 days) to object.  In response to another comment, the DOL indicated that such “negative consent” would not satisfy the “solely at the direction” requirement where the adviser recommends a different asset allocation structure – in that situation, the DOL believes a participant must make an “affirmative direction.”

(5)  Retention of Records.  Like the proposed regulation and the proposed class exemption, the final rule requires the fiduciary adviser to maintain, for a period of not less than 6 years after the provision of investment advice under the arrangement, any records necessary to determine whether the applicable requirements have been met.

The Class Exemption

Paragraph (d) of the final rule addresses the requirements of the Class Exemption.  Like the proposed class exemption, paragraph (d) of the final rule provides supplemental relief for the same transactions covered by the Statutory Exemption:   (i) the provision of investment advice to Plan participants and beneficiaries by a fiduciary adviser; (ii) the investment transactions entered into in reliance on the advice; and (iii) the receipt of fees by the fiduciary adviser in connection with such investment advice or transactions.  Although the Class Exemption incorporates many of the terms and conditions of the Statutory Exemption, it expands the relief provided for these covered transactions in two key ways:

• It permits individualized investment advice after the furnishing of computer model recommendations or, in the case of IAPs with brokerage windows or self-directed brokerage accounts and IRAs with respect to which modeling is not feasible, after the furnishing of certain investment education material;
• For fee-leveling arrangements, it limits the level-fee requirement to compensation received by the employee, agent or registered representative providing advice on the fiduciary adviser’s behalf, making the requirement inapplicable to the fiduciary adviser’s (i.e., the company’s) own compensation.

In response to one commenter, the DOL confirmed that a fiduciary adviser providing individualized advice to a particular participant would not be precluded from using another fiduciary adviser’s computer modeled recommendations for that participant, provided the final rule’s requirements for computer modeled and individualized advice are otherwise met and the individualized advice is “reasonably contemporaneous with the computer modeled advice.”  Thus, a recordkeeper could offer participants a proprietary computer model that complies with the Statutory Exemption, and a second advice provider could rely on the recordkeeper’s computer modeled advice to comply with the Class Exemption in giving off-model recommendations to a particular participant.

The proposed exemption limited the relief for post-investment education advice to IRAs with respect to which the types or number of investment choices reasonably precludes the use of a computer model meeting the requirements of the Statutory Exemption.  In response to public comments, the DOL extended the relief provided in the Class Exemption for post-investment education advice to IAPs that offer brokerage windows, self-directed brokerage accounts, or similar arrangements that enable participants to select investments beyond those designated by the plan.  The DOL reasoned that these IAP arrangements present the same computer modeling difficulties encountered by IRAs that impose few restrictions on investment choices.  However, if the IAP also offers designated investment options, the Class Exemption requires that computer model-generated recommendations regarding such designated options be furnished to the participant or beneficiary before providing individualized investment advice.

Notably, for purposes of the relief provided for post-investment education advice, only IRAs are subject to the requirement that the “types or number of investment choices reasonably preclude[] the use of a computer model.”  In response to requests for further guidance on this limitation, the DOL indicated in the preamble that various factors may reasonably preclude the use of computer modeling to generate investment recommendations for IRAs (e.g., the number of options offered, the type of options, and the relative costs of developing and maintaining such computer models and the benefits of offering them to IRA beneficiaries), and that this will be “an evolving, rather than a static, standard.”  Thus, where an IRA program only permits the purchase and sale of a limited number of mutual funds, it might be difficult to argue that the program reasonably precludes the use of a model, since many models are able to process a limited set of mutual funds.  By contrast, an IRA program that permits annuities, stocks and bonds, currency or other investment products would likely be deemed to reasonably preclude the use of a model.  Given Congress’s explicit direction that the DOL grant a class exemption for IRAs if it determines “there is no computer model investment advice program” which can “take[] into account the full range of investments, including equities and bonds, in determining the options for the investment portfolio of [an IRA] beneficiary,” see H.R. 4, 109th Cong., 2d Sess. at 186 (Aug. 17, 2006), we think it would be hard to argue that the Class Exemption is not fully authorized by the statute and within the DOL’s authority.

The proposed class exemption required that any post-model/investment education advice not recommend investment options that might generate greater income for the fiduciary adviser than other options within the same asset class, unless the fiduciary adviser prudently concludes that the recommendation is in the participant’s or beneficiary’s best interest and explains the basis for its conclusion.  It further required the adviser to document the basis of any advice given to the participant or beneficiary within 30 days after providing the advice.  In response to public comments, the DOL combined and expanded these requirements and made them a general requirement of the final Class Exemption, thus extending them to the fee-leveling conditions, as well as the post-model/investment education advice conditions of the Class Exemption.  The final Class Exemption requires the fiduciary adviser to conclude, in connection with providing any individualized advice under the exemption, that the advice is prudent and in the participant’s or beneficiary’s best interests and explain the basis of that conclusion.  If applicable, the adviser also must explain why and how the advice differs from any computer modeled recommendation or education materials provided, and why the advice includes an option with higher fees than other plan options in the same asset class.  Within 30 days after providing this explanation, the employee, agent or registered representative providing the advice on the fiduciary adviser’s behalf must document the explanation.   

Unlike the Statutory Exemption, the Class Exemption includes a requirement that the fiduciary adviser adopt and follow written policies and procedures that are designed to assure compliance with the conditions of the exemption.  The DOL indicated in the preamble to the final rule that the independent auditor engaged to conduct an annual compliance audit must review, as part of that audit, the fiduciary’s compliance with its policies and procedures.   

You may obtain a copy of the final rule here. A copy of today's Notice of Proposed Extension and Request for Public Comments is available here. Questions about the final rule may be directed to Melanie Nussdorf at 202.429.3009, Eric Serron at 202.429.6470 or Patrick Menasco at 202.429.6215.