Pension Reform Act Creates Fiduciary Adviser for 401(k) Plans

In recognition of historic changes in worker retirement planning, Congress has passed pension reform legislation allowing companies to provide their employees with access to professional investment advice under fiduciary and disclosure safeguards. The Pension Protection Act includes a comprehensive investment advice provision allowing employers to provide rank-and-file workers with access to a qualified investment adviser who can inform them of the need to diversify and help them choose appropriate investments. The vehicle for the provision of this investment advice will be the fiduciary adviser, a new term in financial regulation, defined to mean a plan fiduciary who is also a registered investment adviser, registered broker dealer, bank trust department, or insurance company. The fiduciary adviser will provide the advice through an eligible investment advice arrangement. For the first time, qualified fiduciary advisers will be allowed to offer face-to-face, personally-tailored investment advice to help employees manage their 401(k) and other retirement options.

As additional protection, Congress commands that the terms of a recommended transaction must be at least as favorable to the plan as an arm's length transaction would be, and that the compensation received by the fiduciary adviser be reasonable. Fiduciary advisers must also comply with a six-year record-keeping requirement for records necessary to determine whether the conditions of the exemption have been met.