PWBA Office of Regulations and Interpretations

EXPOSURE DRAFT

DECEMBER 8, 1995

                              Title 29 - Labor

CHAPTER XXV - PENSION AND WELFARE BENEFITS ADMINISTRATION, DEPARTMENT OF
LABOR

PART 2509 - INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974

                         Interpretive Bulletin 96-

AGENCY: Department of 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, Pension and Welfare
Benefits Administration, U.S. Department of Labor, 200 Constitution Av.
N.W. Room N-5669, Washington, DC 20210, telephone (202) 219-8671, or
William W. Taylor, 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- , which interprets sections 3(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 and the Department's regulations, at 29
C.F.R. § 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 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- identifies a
range 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 C.F.R. 2510.3-21(c)(1). The interpretive bulletin points out safe
harbors under ERISA for plan sponsors and service providers who provide
participants and beneficiaries with four types of investment information
and materials -- plan information, general financial and investment
information, asset allocation models and interactive investment materials
-- as described in paragraph c of IB 96- .

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 ("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 the type described in paragraph c of IB
96- would not be subject to registration or regulation under the Advisers
Act. See Letter 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
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.

PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974

Part 2509 is amended by adding a new Section 2509.96-__ to read as follows:

SECTION 2509.96-__ Interpretive Bulletin Relating to Participant Investment
Education.

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 C.F.R. § 2550.404c-1).

a. 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 §§ 403, 404 and 409. 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, 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," 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>

b. "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 . . .."<3> 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 § 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
material to a participant or beneficiary constitutes the rendering of
"investment advice," within the meaning of § 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 c below, examples of investment-related
information and material 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).

c. 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 material 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 form
in which the information or material is provided (e.g., on an individual or
group basis, in writing or orally, via video or computer software), or
whether an identified category of information and material is furnished
alone or in combination with other identified categories of information and
material:

1. Plan Information.

(a) Information or material that informs 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

(b) information described in 29 CFR § 2550.404c-1(b)(2)(i) on investment
alternatives under the plan (e.g. descriptions of investment objectives,
risk and return characteristics, historical return information, related
prospectuses).<5>

The information and material 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 § 2510.3-21(c)(l)(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 or material
that informs a participant or beneficiary about: (a) general financial and
investment concepts, such as, risk and return, diversification, dollar cost
averaging, compounded return, and tax deferred investment; (b) historic
differences in rates of return between different asset classes (e.g.,
equities, bonds, cash) based on standard market indices; (c) effects of
inflation; (d) estimating future retirement income needs; (e) determining
investment time horizons; and (f) assessing risk tolerance.

The information and material described above is general financial and
investment information that has 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 §
2510.3-21(c)(l)(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 or material (e.g., pie charts,
graphs, case studies) that provide a participant or beneficiary with models
of asset allocation portfolios of hypothetical individuals with different
time horizons and risk profiles, where: (a) such models are based on
generally accepted investment theories that take into account the historic
returns of different asset classes (e.g., equities, bonds, cash) over
defined periods of time; (b) all material facts and assumptions on which
such models are based (e.g., retirement ages, income levels, financial
resources, replacement income ratios, inflation rates, rates of return)
accompany the models; (c) to the extent that an asset allocation model
identifies or matches any specific investment alternative available under
the plan with a generic asset class identified in the model, all investment
alternatives of that generic asset class available under the plan are
similarly identified or matched; and (d) the asset allocation models are
accompanied by a statement indicating that, in applying any particular
asset allocation model to his or her individual situation, the participant
or beneficiary should consider his or her other assets, income and
investments (e.g., equity in a home, IRA investments, savings accounts) in
addition to his or her interest in the plan.

Because the information and material 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 §
2510.3-21(c)(l)(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 material(s) 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: (a) such
material(s) are based on generally accepted investment theories that take
into account the historic returns of different asset classes (e.g.,
equities, bonds, cash) over defined periods of time; (b) there is an
objective correlation between the asset allocations generated by the
material(s) and the information and data supplied by the participant or
beneficiary; (c) all material facts and assumptions (e.g., retirement ages,
income levels, financial resources, replacement income ratios, inflation
rates, rates of return) which may affect a participant's or beneficiary's
assessment of the different asset allocations accompany the material(s) or
are specified by the participant or beneficiary; (d) to the extent that an
asset allocation generated by the material(s) identifies any specific
investment alternative available under the plan, all investment
alternatives under the plan with similar risk and return characteristics
are similarly identified, and (e) the materials are accompanied by a
statement indicating that, in applying any particular asset allocation to
his or her individual situation, the participant or beneficiary should
consider his or her other assets, income and investments (e.g., equity in a
home, IRA investments, savings accounts) in addition to his or her interest
in the plan.

The information provided through the use of the above- described
material(s) 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 § 2510.3-21(c)(l)(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 material described in
subparagraphs 1 - 4 above merely represent examples of the type of
information and material which may be furnished to participants and
beneficiaries without such information and material constituting
"investment advice." In this regard, the Department recognizes that there
may be many other examples of information, material, 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, material or educational services not described therein may
constitute "investment advice." Determinations as to whether the provision
of any information, material or educational services not described herein
constitutes the rendering of "investment advice" must be made by reference
to the criteria set forth in § 2510.3-21(c)(1).

d. 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). 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). 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 __________ day of ________ , 1996.

[FR Doc.________________ Filed _______________ ]

______________________

OLENA BERG

Assistant Secretary
Pension and Welfare
Benefit Administration
U.S. Department of Labor

<1> The Department notes that the section 404(c) regulation conditions
relief from fiduciary liability on, among other things, participants and
beneficiaries being provided or having the opportunity to obtain sufficient
information to make informed investment decisions with regard to investment
alternatives available under their plan, and specifies certain types of
information that must be provided to participants. Neither the Act nor the
regulation, however, conditions relief under section 404(c) on a plan
sponsor or fiduciary offering or providing participants and beneficiaries
either investment advice or educational information, materials or programs
to assist them in understanding and evaluating general investment
principles and strategies. 29 CFR § 2550.404c-1(c)(4).

<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 of the scope of this interpretive bulletin.
Accordingly, no inferences should be drawn regarding such issues. See 29
CFR § 2550.404c-1(c)(2).

<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 advice 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).

<4> This IB does not address the application of 29 CFR § 2510.3-21(c) to
other 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,
cash) of the investment alternatives. 29 CFR §
2550.404c-1(b)(2)(i)(B)(1)(ii).

                      EXPOSURE DRAFT DECEMBER 8, 1995