Both ERISA and the Internal Revenue Code generally prohibit an investment adviser from recommending an investment to participants in participant-directed individual account plans that would cause the adviser, or a person or entity in which the adviser has an interest that may affect the exercise of the adviser’s best judgment as a fiduciary, to receive an additional fee as a result of the investment. The Pension Protection Act of 2006, however, amended both ERISA and the Internal Revenue Code to add a statutory exemption to permit an adviser to give investment advice through an “eligible investment advice arrangement,” provided the adviser itself does not receive an additional fee as a result of the investment (unless the advice is given through a computer model).  In late February 2010, the U. S. Department of Labor published proposed regulations on providing investment advice to participants in section 401(k) and other individual account plans, as well as individual retirement accounts and certain similar plans, through eligible investment advice arrangements.

Click on the PDF link above to view the full alert.

Source: Employee Benefits & Executive Compensation Alert
Leave Drinker Biddle to Learn More