Here is your latest FYI: Employee Benefits
Update from Cindy Van Bogaert, Partner and Chair of the Employee
Benefits Practice Group at Boardman Law Firm LLP.
This FYI discusses a new way to get investment help to plan participants in an
individual account plan, like a 401(k) plan, while still limiting employer exposure
for investment advice and participant choices.
Why is this useful? Under pension law, someone who gives investment
advice for a fee (whether the fee is paid directly or indirectly)
is a fiduciary. Unless there is an exemption, fiduciaries are not
allowed to receive any pay related to plan transactions. If, for
example, an investment adviser is related to the firm providing
the investment options, there may be concerns.
The Pension Protection Act of 2006 introduced a new exemption
for an "eligible investment advice arrangement" that
provides an avenue for investment advice to be given for a fee
without violating the pension restrictions. A plan fiduciary will
have responsibility for selecting and monitoring the fiduciary
adviser, but if all the requirements are met, the plan sponsor
should be protected against liability for specific advice given
to participants by the fiduciary adviser.
The arrangement allows a "fiduciary adviser" to provide
investment advice in one of two ways:
| (1) |
Advice created with a computer
model; or |
| (2) |
Advice given under an arrangement
in which the investment adviser's fees cannot vary based on
the investment option selected. |
There are many requirements, including notice to participants
and an annual audit by an independent auditor.
The new exemption is effective starting in 2007. A plan sponsor
wishing to set up an eligible investment advice arrangement should
consider the following:
| (1) |
Take prudent steps in selecting the service
provider. See the Department of Labor's "Tips for Selecting
and Monitoring Service Providers for Your Employee Benefit
Plan" http://www.dol.gov/ebsa/pdf/fs052505.pdf
and "Selecting and Monitoring Pension Consultants - Tips for Plan Fiduciaries" http://www.dol.gov/ebsa/pdf/fs053105.pdf |
| (2) |
Document the selection and
authorization by a plan fiduciary. |
| (3) |
Determine how fees will be
paid. |
| (4) |
Enter into a written agreement
with the fiduciary adviser. |
| (5) |
Establish periodic review (including
review of annual audit report). |
If you have any questions or need assistance, please contact Cindy
Van Bogaert at (608) 281-7543 or cvanbog@boardmanlawfirm.com.
Would you like to have FYI: Employee Benefits Update sent
directly to your e-mail inbox? If so, please send your request,
with e-mail address, to Cindy Van Bogaert at cvanbog@boardmanlawfirm.com.
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