29586 Federal Register / Vol. 61, No. 113 / Tuesday, June 11, 1996 / Rules and Regulations

* 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 employersponsored individual retirement account (IRA) is

considered to be an individual account pension

plan. See 29 CFR 2510.3–2(d).

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.

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 participantdirected 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.

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 investmentrelated 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
Federal Register / Vol. 61, No. 113 / Tuesday, June 11, 1996 / Rules and Regulations 29587

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
29588 Federal Register / Vol. 61, No. 113 / Tuesday, June 11, 1996 / Rules and Regulations

1The 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).

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 participantdirected 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 § 2509.96–1 to read as follows:

§ 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 investmentrelated educational information to

participants and beneficiaries in participantdirected 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

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,
Federal Register / Vol. 61, No. 113 / Tuesday, June 11, 1996 / Rules and Regulations 29589

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).

3The 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).

4This 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.

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 2550.404c1(b)(2)(i)(B)(1) (ii).

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

(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

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

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
29590 Federal Register / Vol. 61, No. 113 / Tuesday, June 11, 1996 / Rules and Regulations

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]

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