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Publications
| July/August 2000 |
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Investment Advisory Services under ERISA
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| By Sheldon M. Geller and Jeffrey D. Mamorsky |
| About the Authors | Executive Summary | |
| Sheldon M. Geller is a CPA, pension attorney, and a shareholder in the benefits consulting firm of the Geller Group, with its corporate offices in New York. He is the Editor of the employee benefits column of The CPA Journal. Jeffrey D. Mamorsky is a shareholder in the New York office and Chairman of the Employee Benefits Group in the international law firm of Greenberg Traurig, L.L.P., and is the Founder and Editor-in-Chief of the Journal of Compensation and Benefits. Messrs. Geller and Mamorsky work together to ensure ERISA and Internal Revenue Code compliance for plan sponsors under the Fiduciary Audit ® Protection Program. |
Retirement plan participants are increasingly demanding and are in need of investment advisory services as a result of their participation in self-directed plans offering mutual funds, brokerage accounts and individual retirement accounts. While the DOL has issued an interpretive bulletin on participant education stating that certain services do not result in ERISA fiduciary liability, the ever-increasing investment recommendations sought by plan participants are ones not subject to the bulletin. This article provides an overview of how ERISA applies to investment advisory services |
Retirement plan participants are increasingly demanding and are in need of investment advisory services as a result of their participation in self-directed plans offering mutual funds and brokerage accounts under their employers’ 401(k) and other individual account plans. The section 404(c) “safe harbor” under the Employee Retirement Income Security Act of 1974 (“ERISA”), which relieves plan fiduciaries of liability for any losses which are the direct result of the participant’s investment decisions, puts extra importance on the investment education of plan participants. Also, what is often overlooked is the employer’s continuing fiduciary responsibility for prudently selecting investment alternatives, disseminating information to plan participants, monitoring the performance of the various investment alternatives and making sure that the participants’ investment instructions are carried out properly.
Another employer concern is that the dissemination of investment information to plan participants may give rise to fiduciary status and potential liability under ERISA for the investment decisions of plan participants. Fortunately, the Department of Labor (“DOL”) has issued guidance and examples of non-specific investment-related information which does not, in the view of the DOL, result in the rendering of “investment advice” under ERISA. However, this DOL guidance is not sufficient for the ERISA marketplace since participants need investment advice, not just education. In this regard, it is the responsibility of the employer plan sponsor to make sure that investment advice is rendered to participants by a qualified investment advisor. If so, the employer can insulate itself from ERISA fiduciary responsibility.
Moreover, the DOL has ruled that an employer plan sponsor, as a responsible plan fiduciary, must obtain sufficient information regarding any fees paid directly or indirectly by the Plan and confirm that such compensation is “reasonable.” This is particularly important in today’s ERISA marketplace where trustees and plan administrators typically receive additional fees from the mutual funds in which Plan assets are invested. Unless such “12b-1 fees” are credited directly to the Plan or offset against other fees the Plan is obligated to pay, the employer could be faced with a breach of fiduciary responsibility for allowing a transaction that violates ERISA’s prohibited transaction provisions.
Note: Download the complete article (14 pages) in Acrobat PDF format:
