96-14093. Interpretive Bulletin 96-1; Participant Investment Education  

  • [Federal Register Volume 61, Number 113 (Tuesday, June 11, 1996)]
    [Rules and Regulations]
    [Pages 29586-29590]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-14093]
    
    
    
    
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    Part II
    
    
    
    
    
    Department of Labor
    
    
    
    
    
    _______________________________________________________________________
    
    
    
    Pension and Welfare Benefits Administration
    
    
    
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    29 CFR Part 2509
    
    
    
    Interpretive Bulletin 96-1; Participant Investment Education; Final 
    Rule
    
    Federal Register / Vol. 61, No. 113 / Tuesday, June 11, 1996 / Rules 
    and Regulations
    
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    DEPARTMENT OF LABOR
    
    Pension and Welfare Benefits Administration
    
    29 CFR Part 2509
    
    RIN 1210-AA50
    
    
    Interpretive Bulletin 96-1; Participant Investment Education
    
    AGENCY: Pension and Welfare Benefits Administration, Labor.
    
    ACTION: Interpretive bulletin.
    
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    SUMMARY: This interpretive bulletin sets forth the views of the 
    Department of Labor (the Department) concerning the circumstances under 
    which the provision of investment-related information to participants 
    and beneficiaries in participant-directed individual account pension 
    plans will not constitute the rendering of ``investment advice'' under 
    the Employee Retirement Income Security Act of 1974, as amended 
    (ERISA). This guidance is intended to assist plan sponsors, service 
    providers, participants and beneficiaries in determining when 
    activities designed to educate and assist participants and 
    beneficiaries in making informed investment decisions will not cause 
    persons engaged in such activities to become fiduciaries with respect 
    to a plan by virtue of providing ``investment advice'' to plan 
    participants and beneficiaries for a fee or other compensation.
    
    EFFECTIVE DATE: January 1, 1975.
    
    FOR FURTHER INFORMATION CONTACT:
     Bette J. Briggs or Teresa L. Turyn, Pension and Welfare Benefits 
    Administration, U.S. Department of Labor, 200 Constitution Ave. N.W. 
    Room N-5669, Washington, DC 20210, telephone (202) 219-8671, or Paul D. 
    Mannina, Plan Benefits Security Division, Office of the Solicitor, U.S. 
    Department of Labor, Washington, DC 20210, telephone (202) 219-4592. 
    These are not toll-free numbers.
    
    SUPPLEMENTARY INFORMATION: In order to provide a concise and ready 
    reference to its interpretations of ERISA, the Department publishes its 
    interpretive bulletins in the Rules and Regulations section of the 
    Federal Register. Published in this issue of the Federal Register is 
    ERISA Interpretive Bulletin 96-1, which interprets section 
    3(21)(A)(ii), 29 U.S.C. 1002(21)(A)(ii), and the Department's 
    regulation issued thereunder at 29 CFR 2510.3-21(c). The Department is 
    publishing this interpretive bulletin because it believes there is a 
    need to clarify the circumstances under which the provision of 
    investment-related information to participants and beneficiaries will 
    not give rise to fiduciary status under ERISA section 3(21)(A)(ii).
    
    (Sec. 505, Pub. L. 93-406, 88 Stat. 894 (29 U.S.C. 1135).)
    
    Background
    
        With the growth of participant-directed individual account pension 
    plans, more employees are directing the investment of their pension 
    plan assets and, thereby, assuming more responsibility for ensuring the 
    adequacy of their retirement income.* At the same time, there has been 
    an increasing concern on the part of the Department, employers and 
    others that many participants may not have a sufficient understanding 
    of investment principles and strategies to make their own informed 
    investment decisions. It has been represented to the Department that, 
    while a number of employers sponsoring participant-directed individual 
    account pension plans have instituted programs intended to educate 
    their employees about investment principles, financial planning and 
    retirement, many employers have not offered programs or offered only 
    limited programs due to uncertainty regarding the extent to which the 
    provision of investment-related information may be considered the 
    rendering of ``investment advice'' under section 3(21)(A)(ii) of ERISA, 
    resulting in fiduciary responsibility and potential liability in 
    connection with participant-directed investments. Although section 
    404(c) of ERISA, 29 U.S.C. 1104(c), and the Department's regulations, 
    at 29 CFR 2550.404c-1, provide limited relief from liability for 
    fiduciaries of pension plans that permit a participant or beneficiary 
    to exercise control over the assets in his or her individual account, 
    there remains a need for employers and others who provide investment 
    information with respect to pension plan assets to know what standards 
    apply in determining whether an education activity may give rise to 
    fiduciary status.
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        * Under section 3(2) of ERISA, 29 U.S.C. 1002(2), the term 
    ``pension plan'' encompasses any plan, fund or program established 
    or maintained by an employer or employee organization, or by both, 
    to the extent that by its express terms or as a result of 
    surrounding circumstances, it provides retirement income to 
    employees or results in a deferral of income by employees for 
    periods extending to the termination of covered employment or 
    beyond. The Department notes that, for purposes of Title I of ERISA, 
    an employer-sponsored individual retirement account (IRA) is 
    considered to be an individual account pension plan. See 29 CFR 
    2510.3-2(d).
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        In view of the important role that investment education can play in 
    assisting participants and beneficiaries in making informed investment 
    and retirement-related decisions and the uncertainty relating to the 
    fiduciary implications of providing investment-related information to 
    participants and beneficiaries, the Department is clarifying, herein, 
    the application of ERISA's definition of the term ``fiduciary with 
    respect to a plan'' in section 3(21)(A)(ii) to the provision of 
    investment-related information to participants and beneficiaries.
        Interpretive Bulletin 96-1 identifies categories of information and 
    materials regarding participant-directed individual account pension 
    plans that do not, in the view of the Department, constitute 
    ``investment advice'' under the definition of ``fiduciary'' in ERISA 
    section 3(21)(A)(ii) and the corresponding regulation at 29 CFR 2510.3-
    21(c)(1). The interpretive bulletin points out, in effect, a series of 
    graduated safe harbors under ERISA for plan sponsors and service 
    providers who provide participants and beneficiaries with four 
    increasingly specific categories of investment information and 
    materials--plan information, general financial and investment 
    information, asset allocation models and interactive investment 
    materials--as described in paragraph (d) of IB 96-1.
    
    Comments on the Interpretive Bulletin
    
        Interpretive Bulletin 96-1 was developed following extensive review 
    of educational materials currently being provided by plan sponsors and 
    service providers to participants. To further ensure that the guidance 
    provided would be helpful, and would promote increased and improved 
    participant education efforts, the Department also released an exposure 
    draft of the interpretive bulletin for public comment. The response to 
    the exposure draft was overwhelmingly positive. Both plan sponsor and 
    service provider representatives unequivocally agreed that the guidance 
    as drafted would strengthen participant investment education, and urged 
    the Department to proceed as expeditiously as possible to adopt the 
    interpretive bulletin. The commenters also suggested various technical 
    and clarifying changes which, as discussed below, have been included in 
    the interpretive bulletin.
    
    Identifying Specific Investment Alternatives in Model Asset Allocations
    
        The most frequent comment on the exposure draft concerned the safe 
    harbor provision in paragraphs (d)(3) (asset allocation models) and 
    (d)(4) (interactive investment materials) that if
    
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    a model asset allocation identifies or matches any specific investment 
    alternative available under the plan with a generic asset class, then 
    all investment alternatives under the plan with similar risk and return 
    characteristics must be similarly identified or matched. The commenters 
    were concerned that in plans with investment alternatives offered by 
    multiple service providers it would be difficult, and possibly 
    inappropriate, for one service provider to identify and describe a 
    competitor's products.
        The requirement to identify other investment alternatives within an 
    asset class was intended to address the concern that a service provider 
    could effectively steer participants to a specific investment 
    alternative by identifying only one particular fund in connection with 
    an asset allocation model. Where it is possible to identify other 
    investment alternatives within an asset class, the Department 
    encourages service providers to do so. In response to the comments, 
    however, safe harbors (d)(3) and (d)(4) have been revised to provide 
    that, where an asset allocation model identifies any specific 
    investment alternative available under the plan, an accompanying 
    statement must indicate that other investment alternatives having 
    similar risk and return characteristics may be available under the 
    plan, and must identify where information on those investment 
    alternatives may be obtained.
    
    The Fiduciary Safe Harbors and Section 404(c)
    
        Several commenters requested clarification of the statement in the 
    exposure draft that issues relating to the circumstances under which 
    information provided to participants and beneficiaries may affect their 
    ability to exercise independent control for purposes of 404(c) are 
    outside the scope of the IB. The commenters were concerned that 
    activities which come within one of the safe harbors for participant 
    education may nevertheless be viewed by the Department as compromising 
    a participant's or beneficiary's ability to exercise independent 
    control under section 404(c).
        Whether a participant or beneficiary has exercised independent 
    control over the assets in his or her individual account pursuant to 
    section 404(c) is necessarily a factual inquiry. In general, however, 
    the types of educational programs described in the safe harbors do not, 
    in the view of the Department, raise issues under section 404(c). 
    Accordingly, footnote 2 of IB 96-1 makes clear that the provision of 
    investment-related information and materials to participants and 
    beneficiaries in accordance with paragraph (d) of the IB will not, in 
    and of itself, affect the availability of relief from the fiduciary 
    responsibility provisions of ERISA that is provided by section 404(c).
    
    Applying Asset Allocations to Individual Participants and Beneficiaries
    
        A number of commenters asked the Department to clarify the 
    requirement to provide a statement that individual participants and 
    beneficiaries should consider their other assets, income or investments 
    (outside of the plan) when applying an asset allocation model or using 
    interactive investment materials. The commenters pointed out that, in 
    many instances, interactive models or materials already take into 
    account an individual's other assets. Accordingly, they requested 
    clarification that such models or materials come within the safe harbor 
    in paragraph (d)(4). Commenters were also concerned that given the 
    rationale for the safe harbor in paragraph (d)(4)--i.e. that 
    interactive investment models or materials enable participants and 
    beneficiaries independently to design and assess multiple asset 
    allocation models--the Department may have intended to exclude from the 
    safe harbors situations in which service providers assist individual 
    participants or beneficiaries to develop possible asset allocation 
    models based upon their personal financial information.
        The provisions of the safe harbors are designed to ensure that 
    participants and beneficiaries will have adequate information to enable 
    them to make their own, informed asset allocation decisions. The 
    Department has clarified that the safe harbor in paragraph (d)(4) for 
    interactive investment materials would not be unavailable merely 
    because the asset allocation models generated by the materials take 
    into account a participant's or beneficiary's non-plan assets, income 
    and investments. Nor does the Department consider that the safe harbor 
    would be unavailable merely because participants and beneficiaries 
    receive personal assistance in developing model asset allocations. In 
    this regard, paragraph (d) of the IB states that providing the 
    categories of information identified in paragraph (d) will not in and 
    of itself constitute the rendering of ``investment advice'' 
    irrespective of the form in which the materials are provided (e.g., 
    whether on an individual or group basis, in writing or orally, or via 
    video or computer software). The interpretive bulletin also makes clear 
    that information and materials within each category may be furnished 
    alone or combined with information and materials from other categories. 
    For example, general financial and investment information on estimating 
    future retirement income needs, determining investment time horizons 
    and assessing risk tolerance, as described in paragraph (d)(2), may be 
    combined with interactive investment materials described in paragraph 
    (d)(4) in order to assist participants and beneficiaries to relate 
    basic retirement planning concepts to their individual situations.
    
    Generally Accepted Investment Theories
    
        Several commenters requested clarification of the requirement that 
    asset allocation models and interactive investment materials must be 
    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.'' The 
    Department included this requirement to assure that, for purposes of 
    the safe harbors, any models or materials presented to participants or 
    beneficiaries will be consistent with widely accepted principles of 
    modern portfolio theory, recognizing the relationship between risk and 
    return, the historic returns of different asset classes, and the 
    importance of diversification.
    
    Plan Sponsor or Fiduciary Endorsements of Service Providers
    
        The commenters also requested clarification regarding the 
    circumstances in which a plan sponsor or fiduciary may be viewed as 
    having fiduciary responsibility by virtue of endorsing a third party 
    who has been selected by a participant or beneficiary to provide 
    participant education or investment advice. Commenters noted, for 
    example, that a plan sponsor may wish merely to provide office space or 
    make computer terminals available for use by a service provider that 
    has been selected by a participant or beneficiary to provide investment 
    education using interactive materials. Whether a plan sponsor or 
    fiduciary has effectively endorsed or made an arrangement with a 
    particular service provider is an inherently factual inquiry which 
    depends upon all the relevant facts and circumstances. It is the 
    Department's view, however, that a uniformly applied policy of 
    providing office space or computer terminals for use by participants or 
    beneficiaries who have independently selected a service provider to 
    provide investment
    
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    education would not, in and of itself, constitute an endorsement of or 
    arrangement with the service provider for purposes of the IB.
    
    Participation Rates, Contribution Levels and Preretirement Withdrawals
    
        With the objective of distinguishing between investment education 
    and investment advice, IB 96-1 focuses primarily on educational 
    activities relating to investment decision-making. However, as 
    suggested in a recent study by the Employee Benefits Research Institute 
    (EBRI), which was commissioned by the Department of Labor, plan 
    participants also need to be informed about the impact on retirement 
    savings of preretirement withdrawals and other fundamental principles 
    regarding plan participation and contribution levels. According to the 
    EBRI study, the impact of preretirement withdrawals on retirement 
    income is one of the least often provided topics and could have serious 
    consequences for the adequacy of employees' retirement income. The 
    Department, therefore, encourages educational service providers to 
    emphasize that participants should: (1) participate in available plans 
    as soon as they are eligible; (2) make the maximum contribution 
    possible to the plan; and(3) if they change employment, refrain from 
    withdrawing their retirement savings, and opt instead to directly 
    transfer or roll over their plan account into an IRA or other 
    retirement vehicle. Such information relating to plan participation is 
    specifically encompassed within the safe harbor in paragraph (d)(1) of 
    IB 96-1.
    
    Application of the Investment Advisers Act of 1940
    
        Employer sponsors of participant-directed individual account 
    pension plans that provide investment-related information to employees 
    who are participants in those plans have also raised questions 
    regarding their status under the Investment Advisers Act of 1940, 15 
    U.S.C. 80b-1 et seq., (``Advisers Act''). In this regard, the staff of 
    the Division of Investment Management of the Securities and Exchange 
    Commission (SEC) has advised the Department of Labor that, generally, 
    employers who provide their employees with investment information 
    including, but not limited to, the type described in paragraph (d) of 
    IB 96-1 would not be subject to registration or regulation under the 
    Advisers Act. This position applies only to employers who provide such 
    information, and not to third-party service providers, whose status 
    under the Adviser's Act must be determined independently. See Letters 
    from Jack W. Murphy, Associate Director (Chief Counsel), Division of 
    Investment Management, SEC, to Olena Berg, Assistant Secretary, Pension 
    and Welfare Benefit Administration, U.S. Department of Labor, dated 
    February 22, 1996, and December 5, 1995. Persons who have questions 
    regarding this issue are directed to contact the Office of the Chief 
    Counsel, Division of Investment Management, at (202) 942-0660. This is 
    not a toll free number.
    
    Executive Order 12866
    
        Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the 
    Department must determine whether the regulatory action is 
    ``significant'' and therefore subject to review by the Office of 
    Management and Budget (OMB) and the requirements of the Executive 
    Order. Under section 3(f), the order defines a ``significant regulatory 
    action'' as an action that is likely to result in, among other things, 
    a rule raising novel policy issues arising out of the President's 
    priorities.
        Pursuant to the terms of the Executive Order, the Department has 
    determined that this regulatory action is a ``significant regulatory 
    action'' as that term is used a Executive Order 12866 because the 
    action would raise novel policy issues arising out of the President's 
    priorities. Thus, the Department believes this notice is 
    ``significant,'' and subject to OMB review on that basis. OMB has 
    reviewed this rule.
    
    Paperwork Reduction Act
    
        The regulation being issued here is not subject to the requirements 
    of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) because 
    it does not contain an ``information collection request'' as defined in 
    44 U.S.C. 3502 (4).
    
    Small Business Regulatory Enforcement Fairness Act
    
        The regulation being issued here is subject to the provisions of 
    the Small Business Regulatory Enforcement Fairness Act of 1996 (5 
    U.S.C. 801 et. seq.) and has been transmitted to Congress and the 
    Comptroller General for review.
    
    List of Subjects in 29 CFR Part 2509
    
        Employee benefits plans, Pensions.
    
        For the reasons set forth above, Part 2509 of Title 29 of The Code 
    of Federal Regulations is amended as follows:
    
    PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE 
    RETIREMENT INCOME SECURITY ACT OF 1974
    
        1. The authority citation for Part 2509 continues to read as 
    follows:
    
        Authority: 29 U.S.C. 1135. Section 2509.75-1 is also issued 
    under 29 U.S.C. 1114. Sections 2509.75-10 and 2509.75-2 are also 
    issued under 29 U.S.C. 1052, 1053, 1054. Secretary of Labor's Order 
    No. 1-87 (52 FR 13139).
    
        2. Part 2509 is amended by adding new Sec. 2509.96-1 to read as 
    follows:
    
    
    Sec. 2509.96-1   Interpretive Bulletin Relating to Participant 
    Investment Education.
    
        (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\
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        \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).
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        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,
    
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    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\
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        \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).
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        (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\
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        \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.
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        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\
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        \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).
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        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
    
    [[Page 29590]]
    
    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.
    
        Signed at Washington, DC, this 30th day of May, 1996.
    Olena Berg,
    Assistant Secretary, Pension and Welfare, Benefits Administration, U.S. 
    Department of Labor.
    [FR Doc. 96-14093 Filed 6-10-96; 8:45 am]
    BILLING CODE 4510-29-M
    
    

Document Information

Effective Date:
1/1/1975
Published:
06/11/1996
Department:
Pension and Welfare Benefits Administration
Entry Type:
Rule
Action:
Interpretive bulletin.
Document Number:
96-14093
Dates:
January 1, 1975.
Pages:
29586-29590 (5 pages)
RINs:
1210-AA50: Interpretive Bulletin on Participant Education
RIN Links:
https://www.federalregister.gov/regulations/1210-AA50/interpretive-bulletin-on-participant-education
PDF File:
96-14093.pdf
CFR: (1)
29 CFR 2509.96-1