(a) Scope. This interpretive bulletin sets forth the Department of
Labor's interpretation of section 3(21)(A)(ii) of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), and 29 CFR
2510.3-21(c) as applied to the provision of investment-related
educational information to participants and beneficiaries in
participant-directed individual account pension plans (i.e., pension
plans that permit participants and beneficiaries to direct the
investment of assets in their individual accounts, including plans that
meet the requirements of the Department's regulations at 29 CFR
2550.404c-1).
(b) General. Fiduciaries of an employee benefit plan are charged
with carrying out their duties prudently and solely in the interest of
participants and beneficiaries of the plan, and are subject to personal
liability to, among other things, make good any losses to the plan
resulting from a breach of their fiduciary duties. ERISA sections 403,
404 and 409, 29 U.S.C. 1103, 1104, and 1109. Section 404(c) of ERISA
provides a limited exception to these rules for a pension plan that
permits a participant or beneficiary to exercise control over the assets
in his or her individual account. The Department of Labor's regulation,
at 29 CFR 2550.404c-1, describes the kinds of plans to which section
404(c) applies, the circumstances under which a participant or
beneficiary will be considered to have exercised independent control
over the assets in his or her account, and the consequences of a
participant's or beneficiary's exercise of such control.\1\
---------------------------------------------------------------------------
\1\ The section 404(c) regulation conditions relief from fiduciary
liability on, among other things, the participant or beneficiary being
provided or having the opportunity to obtain sufficient investment
information regarding the investment alternatives available under the
plan in order to make informed investment decisions. Compliance with
this condition, however, does not require that participants and
beneficiaries be offered or provided either investment advice or
investment education, e.g. regarding general investment principles and
strategies, to assist them in making investment decisions. 29 CFR
2550.404c-1(c)(4).
---------------------------------------------------------------------------
With both an increase in the number of participant-directed
individual account plans and the number of investment options available
to participants and beneficiaries under such plans, there has been an
increasing recognition of the importance of providing participants and
beneficiaries, whose investment decisions will directly affect their
income at retirement, with information designed to assist them in making
investment and retirement-related decisions appropriate to their
particular situations. Concerns have been raised, however, that the
provision of such information may in some situations be viewed as
rendering ``investment advice for a fee or other compensation,'' within
the meaning of ERISA section 3(21)(A)(ii), thereby giving rise to
fiduciary status and potential liability under ERISA for investment
decisions of plan participants and beneficiaries.
In response to these concerns, the Department of Labor is clarifying
herein the applicability of ERISA section 3(21)(A)(ii) and 29 CFR
2510.3-21(c) to the provision of investment-related educational
information to participants and beneficiaries in participant directed
individual account plans.\2\ In providing this clarification, the
Department does not address the ``fee or other compensation, direct or
indirect,'' which is a necessary element of fiduciary status under ERISA
section 3(21)(A)(ii).\3\
---------------------------------------------------------------------------
\2\ Issues relating to the circumstances under which information
provided to participants and beneficiaries may affect a participant's or
beneficiary's ability to exercise independent control over the assets in
his or her account for purposes of relief from fiduciary liability under
ERISA section 404(c) are beyond the scope of this interpretive bulletin.
Accordingly, no inferences should be drawn regarding such issues. See 29
CFR 2550.404c-1(c)(2). It is the view of the Department, however, that
the provision of investment-related information and material to
participants and beneficiaries in accordance with paragraph (d) of this
interpretive bulletin will not, in and of itself, affect the
availability of relief under section 404(c).
\3\ The Department has expressed the view that, for purposes of
section 3(21)(A)(ii), such fees or other compensation need not come from
the plan and should be deemed to include all fees or other compensation
incident to the transaction in which the investment advise has been or
will be rendered. See A.O. 83-60A (Nov. 21, 1983); Reich v. McManus, 883
F. Supp. 1144 (N.D. Ill. 1995).
---------------------------------------------------------------------------
(c) Investment Advice. Under ERISA section 3(21)(A)(ii), a person is
considered a fiduciary with respect to an employee benefit plan to the
extent that person ``renders investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys or other
property of such plan, or has any authority to do so * * *.'' The
Department issued a regulation, at 29 CFR 2510.3-21(c), describing the
circumstances under which a person will be considered to be rendering
``investment advice'' within the meaning of section 3(21)(A)(ii).
Because section 3(21)(A)(ii) applies to advice with respect to ``any
moneys or other property'' of a plan and 29 CFR 2510.3-21(c) is intended
to clarify the application of that section, it is the view of the
Department of Labor that the criteria set forth in the regulation apply
to determine whether a person renders ``investment advice'' to a pension
plan participant or beneficiary who is permitted to direct the
investment of assets in his or her individual account.
Applying 29 CFR 2510.3-21(c) in the context of providing investment-
related information to participants and beneficiaries of participant-
directed individual account pension plans, a person will be considered
to be rendering ``investment advice,'' within the meaning of ERISA
section 3(21)(A)(ii), to a participant or beneficiary only if: (i) the
person renders advice to the participant or beneficiary as to the value
of securities or other property, or makes recommendations as to the
advisability of investing in, purchasing, or selling securities or other
property (2510.3-21(c)(1)(i); and (ii) the person, either directly or
indirectly, (A) has discretionary authority or control with respect to
purchasing or selling securities or other property for the participant
or beneficiary (2510.3-21(c)(1)(ii)(A)), or (B) renders the advice on a
regular basis to the participant or beneficiary, pursuant to a mutual
agreement, arrangement or understanding (written or otherwise) with the
participant or beneficiary that the advice will serve as a primary basis
for the participant's or beneficiary's investment decisions with respect
to plan assets and that such person will render individualized advice
based on the particular needs of the participant or beneficiary (2510.3-
21(c)(1)(ii)(B)).\4\
---------------------------------------------------------------------------
\4\ This IB does not address the application of 29 CFR 2510.3-21(c)
to communications with fiduciaries of participant-directed individual
account pension plan plans.
---------------------------------------------------------------------------
Whether the provision of particular investment-related information
or materials to a participant or beneficiary constitutes the rendering
of ``investment advice,'' within the meaning of 29 CFR 2510.3-21(c)(1),
generally
can be determined only by reference to the facts and circumstances of
the particular case with respect to the individual plan participant or
beneficiary. To facilitate such determinations, however, the Department
of Labor has identified, in paragraph (d), below, examples of
investment-related information and materials which if provided to plan
participants and beneficiaries would not, in the view of the Department,
result in the rendering of ``investment advice'' under ERISA section
3(21)(A)(ii) and 29 CFR 2510.3-21(c).
(d) Investment Education. For purposes of ERISA section 3(21)(A)(ii)
and 29 CFR 2510.3-21(c), the Department of Labor has determined that the
furnishing of the following categories of information and materials to a
participant or beneficiary in a participant-directed individual account
pension plan will not constitute the rendering of ``investment advice,''
irrespective of who provides the information (e.g., plan sponsor,
fiduciary or service provider), the frequency with which the information
is shared, the form in which the information and materials are provided
(e.g., on an individual or group basis, in writing or orally, or via
video or computer software), or whether an identified category of
information and materials is furnished alone or in combination with
other identified categories of information and materials.
(1) Plan Information. (i) Information and materials that inform a
participant or beneficiary about the benefits of plan participation, the
benefits of increasing plan contributions, the impact of preretirement
withdrawals on retirement income, the terms of the plan, or the
operation of the plan; or
(ii) information such as that described in 29 CFR 2550.404c-
1(b)(2)(i) on investment alternatives under the plan (e.g., descriptions
of investment objectives and philosophies, risk and return
characteristics, historical return information, or related
prospectuses).\5\
---------------------------------------------------------------------------
\5\ Descriptions of investment alternatives under the plan may
include information relating to the generic asset class (e,g,, equities,
bonds, or cash) of the investment alternatives. 29 CFR 2550.404c-1
(b)(2)(i)(B)(1)(ii).
---------------------------------------------------------------------------
The information and materials described above relate to the plan and
plan participation, without reference to the appropriateness of any
individual investment option for a particular participant or beneficiary
under the plan. The information, therefore, does not contain either
``advice'' or ``recommendations'' within the meaning of 29 CFR 2510.3-
21(c)(1)(i). Accordingly, the furnishing of such information would not
constitute the rendering of ``investment advice'' for purposes of
section 3(21)(A)(ii) of ERISA.
(2) General Financial and Investment Information. Information and
materials that inform a participant or beneficiary about: (i) General
financial and investment concepts, such as risk and return,
diversification, dollar cost averaging, compounded return, and tax
deferred investment; (ii) historic differences in rates of return
between different asset classes (e.g., equities, bonds, or cash) based
on standard market indices; (iii) effects of inflation; (iv) estimating
future retirement income needs; (v) determining investment time
horizons; and (vi) assessing risk tolerance.
The information and materials described above are general financial
and investment information that have no direct relationship to
investment alternatives available to participants and beneficiaries
under a plan or to individual participants or beneficiaries. The
furnishing of such information, therefore, would not constitute
rendering ``advice'' or making ``recommendations'' to a participant or
beneficiary within the meaning of 29 CFR 2510.3-21(c)(1)(i).
Accordingly, the furnishing of such information would not constitute the
rendering of ``investment advice'' for purposes of section 3(21)(A)(ii)
of ERISA.
(3) Asset Allocation Models. Information and materials (e.g., pie
charts, graphs, or case studies) that provide a participant or
beneficiary with models, available to all plan participants and
beneficiaries, of asset allocation portfolios of hypothetical
individuals with different time horizons and risk profiles, where: (i)
Such models are based on generally accepted investments theories that
take into account the historic returns of different asset classes (e.g.,
equities, bonds, or cash) over define periods of time; (ii) all material
facts and assumptions on which such models are based (e.g., retirement
ages, life expectancies, income levels, financial resources, replacement
income ratios, inflation rates, and rates of return) accompany the
models; (iii) to the extent that an asset allocation model identifies
any specific investment alternative available under the plan, the model
is accompanied by a statement indicating that other investment
alternatives having similar risk and return characteristics may be
available under the plan and identifying where information on those
investment alternatives may be obtained; and (iv) the asset allocation
models are accompanied by a statement indicating that, in applying
particular asset allocation models to their individual situations,
participants or beneficiaries should consider their other assets,
income, and investments (e.g., equity in a home, IRA investments,
savings accounts, and interests in other qualified and non-qualified
plans) in addition to their interests in the plan.
Because the information and materials described above would enable a
participant or beneficiary to assess the relevance of an asset
allocation model to his or her individual situation, the furnishing of
such information would not constitute a ``recommendation'' within the
meaning of 29 CFR
2510.3-21(c)(1)(i) and, accordingly, would not constitute ``investment
advice'' for purposes of section 3(21)(A)(ii) of ERISA. This result
would not, in the view of the Department, be affected by the fact that a
plan offers only one investment alternative in a particular asset class
identified in an asset allocation model.
(4) Interactive Investment Materials. Questionnaires, worksheets,
software, and similar materials which provide a participant or
beneficiary the means to estimate future retirement income needs and
assess the impact of different asset allocations on retirement income,
where: (i) Such materials are based on generally accepted investment
theories that take into account the historic returns of different asset
classes (e.g., equities, bonds, or cash) over defined periods of time;
(ii) there is an objective correlation between the asset allocations
generated by the materials and the information and data supplied by the
participant or beneficiary; (iii) all material facts and assumptions
(e.g., retirement ages, life expectancies, income levels, financial
resources, replacement income ratios, inflation rates, and rates of
return) which may affect a participant's or beneficiary's assessment of
the different asset allocations accompany the materials or are specified
by the participant or beneficiary; (iv) to the extent that an asset
allocation generated by the materials identifies any specific investment
alternative available under the plan, the asset allocation is
accompanied by a statement indicating that other investment alternatives
having similar risk and return characteristics may be available under
the plan and identifying where information on those investment
alternatives may be obtained; and (v) the materials either take into
account or are accompanied by a statement indicating that, in applying
particular asset allocations to their individual situations,
participants or beneficiaries should consider their other assets,
income, and investments (e.g., equity in a home, IRA investments,
savings accounts, and interests in other qualified and non-qualified
plans) in addition to their interests in the plan.
The information provided through the use of the above-described
materials enables participants and beneficiaries independently to design
and assess multiple asset allocation models, but otherwise these
materials do not differ from asset allocation models based on
hypothetical assumptions. Such information would not constitute a
``recommendation'' within the meaning of 29 CFR 2510.3-21(c)(1)(i) and ,
accordingly, would not constitute ``investment advice'' for purposes of
section 3(21)(A)(ii) of ERISA.
The Department notes that the information and materials described in
subparagraphs (1)-(4) above merely represent examples of the type of
information and materials which may be furnished to participants and
beneficiaries without such information and materials constituting
``investment advice.'' In this regard, the Department recognizes that
there may be many other examples of information, materials, and
educational services which, if furnished to participants and
beneficiaries, would not constitute ``investment advice.'' Accordingly,
no inferences should be drawn from subparagraphs (1)-(4), above, with
respect to whether the furnishing of any information, materials or
educational services not described therein may constitute ``investment
advice.'' Determinations as to whether the provision of any information,
materials or educational services not described herein constitutes the
rendering of ``investment advice'' must be made by reference to the
criteria set forth in 29 CFR 2510. 3-21(c)(1).
(e) Selection and Monitoring of Educators and Advisors. As with any
designation of a service provider to a plan, the designation of a
person(s) to provide investment educational services or investment
advice to plan participants and beneficiaries is an exercise of
discretionary authority or control with respect to management of the
plan; therefore, persons making the designation must act prudently and
solely in the interest of the plan participants and beneficiaries, both
in making the designation(s) and in continuing such designation(s). See
ERISA sections 3(21)(A)(i) and 404(a), 29 U.S.C. 1002 (21)(A)(i) and
1104(a). In addition, the designation of an investment advisor to serve
as a fiduciary may give rise to co-fiduciary liability if the person
making and continuing such designation in doing so fails to act
prudently and solely in the interest of plan participants and
beneficiaries; or knowingly participates in, conceals or fails to make
reasonable efforts to correct a known breach by the investment advisor.
See ERISA section 405(a), 29 U.S.C. 1105(a). The Department notes,
however, that, in the context of an ERISA section 404(c) plan, neither
the designation of a person to provide education nor the designation of
a fiduciary to provide investment advice to participants and
beneficiaries would, in itself, give rise to fiduciary liability for
loss, or with respect to any breach of part 4 of title I of ERISA, that
is the direct and necessary result of a participant's or beneficiary's
exercise of independent control. 29 CFR 2550.404c-1(d). The Department
also notes that a plan sponsor or fiduciary would have no fiduciary
responsibility or liability with respect to the actions of a third party
selected by a participant or beneficiary to provide education or
investment advice where the plan sponsor or fiduciary neither selects
nor endorses the educator or advisor, nor otherwise makes arrangements
with the educator or advisor to provide such services.
[61 FR 29588, June 11, 1996]
