Pension Protection Act 2006 Highlights
401k Plan sponsors must effective December 31, 2006:
- Broker of record / investment advisers to the plan and the new fiduciary advisers, if any, who provide investment advice to participants will have to acknowledge their fiduciary status in writing
- All conflicts of interest held by the above and or affiliates must be disclosed in writing
- All forms of compensation, revenue, economic benefit of the above and or affiliates must be disclosed in writing
- Annual audit of investment adviser, fiduciary adviser and computer model, if any, is required
Added Safe harbor protection is available for those plans already compliant with the 9 (8 old plus 1 new) requirements of 404-c and who prudently select and monitor the new fiduciary adviser, whose advice is appropriate for the plan and whose fees are fair and reasonable in addition to required disclosures’ noted above. The new Eligible investment advice arrangement (EIAA)must include fee-neutral compensation of the fiduciary adviser and or use a certified computer model to provide such advice. Computer model must be audited annually.
A new second available Safe Harbor may be electedPlan sponsors may choose to offer a Qualified Default Investment Alternative (QDIA). Some important limitations and participant notice requirements are available for any of 5 buckets acceptable by the US Department of Labor (DOL).
ERISA plan sponsors are fiduciaries and co-fiduciaries both responsible for the acts and omissions of each other with certain exceptions for the compliant investment advice provider.
An example cited by the Center for Fiduciary Studies www.fi360.com states that the “best participant advice in the world will still fall short if the plan itself is not being properly managed and administered. Therefore a fiduciary adviser should begin an engagement with a 401k plan sponsor by assessing whether the plan is meeting its terms and purposes to provide benefits. Over 20 steps define procedural prudence of a plan sponsor. Each of which has been fully substantiated by ERISA, relevant case law and or regulatory opinion letter.”
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