On Tuesday, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) will publish in the Federal Register a final (pdf) and a proposed rule (pdf) providing for greater worker investment and retirement account protections. Both final and proposed rules were drafted in response to the Pension Protection Act of 2006 (PPA), which amended portions of the Employee Retirement Income Security Act (ERISA) dealing with investment advice and retirement plan transparency. The announcement of these rules was made at a White House forum hosted by Vice President Joe Biden on Friday. According to the DOL, these two new rules are “designed to enhance retirement security and transparency for the millions of workers covered by 401(k), pension and other retirement arrangements.”

The final rule implements the multiemployer retirement plan transparency provisions of section 101(k) of ERISA, which was added by the PPA. This section requires that, upon written request, the multiemployer plan administrator provide copies of certain actuarial and financial documents about the plan to participants, beneficiaries, employee representatives and contributing employers no later than 30 days after the request is made, with certain limited exceptions. Those who fail to do so face a penalty of up to $1,000 per day for each violation. The final rule takes effect April 1, 2010.

The required documents include copies of periodic actuarial reports—defined as reports prepared by an actuary of the plan and received by the plan at regularly scheduled, recurring intervals—or studies, tests (including sensitivity tests), documents, analyses, or other information received by the plan from an actuary of the plan that shows alternative funding scenarios based on a range of alternative actuarial assumptions, whether or not such information is received by the plan at regularly scheduled, recurring intervals. Other documents covered by this rule include quarterly, semi-annual, or annual financial reports prepared for the plan by any plan investment manager or advisor, and applications for funding relief filed with the Secretary of the Treasury requesting an extension of minimum funding requirements. The plan administrator is not required to provide a report that has not been in the plan’s possession for at least 30 days, but must inform the requester about the earliest date on which the report can be furnished. The final rule also imposes a 6-year limit on the provision of “aged” documents. Exceptions to the disclosure requirements also exist for individually identifiable and proprietary information as well as for underlying information and data.

The final rule allows a plan administrator to impose reasonable charges to cover the cost of furnishing the requested documents. According to the rule, a reasonable charge may not exceed the lesser of the actual cost to the plan for the least expensive means of acceptable reproduction of the document, or 25 cents per page, plus the cost of mailing or otherwise delivering the requested document. A plan administrator is not required to furnish to any requester more than one copy of a document during any 12-month period.

Plan participants and beneficiaries can be informed of the rights conferred by this final rule via the plan summary.

The EBSA’s proposed rule addresses the provision of investment advice to participants and beneficiaries in individual account plans, such as 401(k) plans, and beneficiaries of individual retirement accounts (and certain similar plans). This proposed rule would implement provisions of a statutory prohibited transaction exemption in ERISA and the Internal Revenue Code (IRC). The proposal follows the withdrawal of a final rule issued on January 21, 2009 after concerns were raised about the potential for advisor self-dealing.  As a result, the proposed rule lacks the earlier rule’s administrative class exemption, which was the target of some commentators’ concerns. The proposed regulations also contain clarifying language regarding the interpretation of the statutory exemption’s fee-leveling requirement.

The proposed rule, among other things, would require investment advisors to disclose their fees, and obtain a certification that their computer models used to provide the investment advice are objective and unbiased.

Comments to the proposed rule must be submitted on or before May 5, 2010, and contain the identification number: RIN 1210-AB35. The EBSA is encouraging the submission of comments electronically via the federal eRulemaking portal at http://www.regulations.gov, or by e-mail to e-ORI@dol.gov (enter into subject line: 2010 Investment Advice Proposed Rule). Written comments can be sent to Office of Regulations and Interpretations, Employee Benefits Security Administration, Attn: 2010 Investment Advice Proposed Rule, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210.
 

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