DOL Releases Guidance on PTE for Investment Advice

In Field Assistance Bulletin (FAB) 2007-01, the U.S. Department of Labor provides guidance on the statutory prohibited transaction exemption (PTE) for investment advice under the Pension Protection Act of 2006 (PPA). The guidance primarily affects defined contribution plan sponsors and those who provide investment advice to defined contribution plan participants.

Under the FAB:

• The new statutory exemption does not invalidate or otherwise affect previous DOL guidance relating to investment advice.
• A plan sponsor that prudently selects and monitors an investment advice provider will not be liable for the advice, regardless of whether the advice is provided under the PPA’s statutory exemption.

The FAB provides information on appropriate processes for selecting and monitoring investment advisers.

The DOL also clarifies that affiliates of a fiduciary adviser will be subject to the level-fee requirement — meaning the fee remains the same regardless of the investment selections — if the affiliate provides investment advice to plan participants and beneficiaries. Any individual acting as an employee, agent or registered representative on behalf of a fiduciary adviser also must be treated as a fiduciary adviser under the PPA’s statutory exemption. So in such instances, both the individual and the entity would be treated as fiduciary advisers and be subject to the level-fee requirement.

Finally, the DOL expects fiduciary advisers to be able to demonstrate compliance with policies and procedures to ensure that fees and compensation paid to fiduciary advisers — at both the entity and the individual levels — are not affected by investment selections. The DOL anticipates that compliance with these policies and procedures will be reviewed during the annual audit required by the PPA’s statutory exemption.