Guideline to Investment Education for Retirement Plan Participants

 

This FBN module provides links to information which is intended to meet the investment education guidelines for retirement plan participants issued by the U.S. Department of Labor. These guidelines are currently (2012)  being reviewed for potential update.

 This information is a summary of information from outside sources deemed reliable. However, no representation or guarantee is made regarding the accuracy or completeness of the information. You should rely on the original sources for complete and definitive information.

Fiduciary Responsibilities: ERISA Requirements

INTRODUCTION

An interpretive bulletin (1996) by the Department of Labor reflects the desire of the DOL to encourage the financial education of retirement plan participants.

Since participants continue to be responsible for the investments in their 401(k) retirement plan accounts and the market downturn of recent years is an ongoing concern, employers are taking a closer look at offering professional financial education programs to their employees.

In the interpretive bulletin 29 CFR 2509.96-1, the DOL specified the difference between “investment advice” and “investment education.”

This segment of the Financial Benefits Network program was structured to address the needs of fiduciaries and employee/participants and their beneficiaries regarding “investment education.”

The Financial Benefits Network program addresses these investment education concerns by offering worksite financial education seminars and workshops for employees and family members as well as individual meetings with FBN representatives. In addition, links to informative financial websites are provided which address the topics specified in the DOL bulletin.

The FBN program and representatives offer “investment education” based on the DOL regulations, and do not offer or provide “investment advice” to participants regarding their retirement plan investments and options.

The DOL, in releasing its bulletin on investment education, reflects its desire that participants have enough knowledge of basic investment concepts and strategies to put their control of their retirement plan investments to proper use.

By and large, the DOL fears, they do not. At the same time, many sponsors of participant-directed 401(k) or profit-sharing plans have refused to provide investment education programs for their participants out of fear that crossing the line from investment education to advice, even inadvertently, may create unacceptable new fiduciary liabilities. Others have been concerned that an investment education program would subject them to regulation under the Investment Advisors Act of 1940.

The DOL interpretive bulletin is intended to encourage education of retirement plan participants by creating investment education “safe harbors” for plan sponsors and other information providers. If the information they provide to plan participants falls within the safe harbors, plan sponsors will not be deemed to have provided investment advice.

Many sponsors concerned about crossing the line that separates investment education from investment advice should now be able to create effective education programs for participants while remaining within the safe harbors.

The DOL interpretive bulletin makes no attempt to define or provide examples of what constitutes investment advice, which already is outlined in Section 3(21) (A)(ii) of ERISA. Instead, the safe harbors are examples of what investment-related information and material does not constitute investment advice, and thus would not result in the rendering of investment advice.

Source: “Rules/Regs: When Investment Education is not Investment Advice”
Plan Sponsor Magazine, April, 1996

What constitutes “Investment Education” and not “Investment Advice?”

To quote directly from the DOL interpretive bulletin, General Financial and Investment Information is as follows:

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, compound 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;

(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”.

The interpretive bulletin goes on to specify the guidelines allowable for the use of the following:

Asset Allocation models

Interactive Investment Materials, including questionnaires, worksheets, software, and similar materials which provide a participant or beneficiary the means to estimate futureretirement income needs and assess the impact of different asset allocations on retirement income.

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