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What about investment advice?  

As a plan sponsor, you are responsible to make sure that the investment choices in the plan are balanced to reduce the risk of loss, among other duties. But you are not responsible for losses experienced by individual investors in your plan as a result of their own investment choices.

But because you care about your employees, you would like them to have investment advice to help them protect their money.

Unfortunately, it would be impossible for fund managers to recommend investments to individual investors that would make the most money for the fund, rather than being in the best interest of the individual.

Whether you are a fiduciary or not, keep in mind that:

  • Providing advice can be prohibited (if your plan is subject to ERISA and you are a fiduciary)
  • Advice between third parties and participants is allowed
  • Education is encouraged
  • Also, there is an exception under the DOL Advisory Opinion in SunAmerica case

If your plan is subject to ERISA and you are a fiduciary, the fund manager who manages the funds in the plan is prohibited from providing advice directly to the plan’s participants for a fee. This is considered a
“prohibited transaction” known as self-dealing.

Investment advice between third parties and participants is allowed. Examples include third-party providers or internet-based tools that are not affiliated with the investment managers of the fund plan options.

Even if you are not a fiduciary, to the extent you take on a fiduciary role the IRS and/or other regulatory agencies can hold you to that standard.  So it is important to structure any investment advice consistent with the applicable guidance.

As mentioned, investment providers have not been allowed to provide specific investment advice. Years ago, the U.S. Department of Labor created a prohibited transaction rule to this effect, because they believed investment providers had an inherent conflict of interest between providing advice in the best interest of the client and advice that used the fund(s) most profitable for the provider.

Because the DOL believed participants were not being well-served for all of the reasons we have just talked about, SunAmerica applied to the Department of Labor for an exemption from the prohibited transaction rule. In brief, they created an investment process which:

  • Used an independent financial expert to generate specific investment recommendations
  • Applied the advice tools only to a portfolio of funds approved by the sponsor
  • Allowed SunAmerica and its affiliates – including VALIC – to serve as a presenter of specific investment advice
  • Requires an annual update of the advice and quarterly communication of transactions undertaken on the client’s behalf

The process would allow the investment provider to provide ongoing investment management for a fee.

Under this ruling plan sponsors can take advantage of a number of benefits for their employees with no conflict of interest. These include approved online calculators, as well as retirement saving advice through third-party expert DTS, and even full asset management through the well-respected Morningstar Investment Management LLC.

Programs that are structured and operate in accordance with the SunAmerica model can be utilized by participants in both ERISA and non-ERISA plans. 

Ask your current retirement plan provider if they have similar resources available.

If you need additional information, visit the Department of Labor (DOL) website.
The Department of Labor’s website (www.dol.gov/ebsa) offers extensive educational material (e.g., https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf) as well as legislative and regulatory updates.  It is a useful resource for your ongoing education.