On October 25, 2011, the Department of Labor (DOL) published its final regulation implementing the ERISA prohibited transaction exemptions for participant investment advice enacted in the Pension Protection Act of 2006 (PPA). This final regulation brings to a conclusion an almost five-year process to implement the PPA exemptions permitting “level fee” and “computer model” advice for retirement plan participants and IRA beneficiaries. In broad scope, the final regulation retains the general structure and terms of the Obama Administration’s March 2, 2010 proposal, with several refinements and clarifications. The regulation is effective as of December 27, 2011.

Background

The shift towards participant-directed retirement plans that took hold in the 1990s had the unintended consequence of reducing the portion of retirement assets that are invested with the benefit of professional investment advice. Moreover, the businesses already in service relationships that could accommodate that advice — the retirement platform, product and service providers that evolved to serve the defined contribution and IRA markets — often have been impeded by ERISA from providing investment advice. To the extent those providers (or an affiliate) had an economic stake in the investment options available and thus in the investment choices made under the retirement plan or IRA, an ERISA prohibited transaction generally would occur if the investment advice would cause the provider to be an ERISA fiduciary. (Providing “investment advice for a fee,” within the meaning of ERISA § 3(21), is one of the three ways to become an ERISA fiduciary.)