Fiduciary liability when providing investment advice

[Guest Tina Elders]

I am currently working on a research project for my Compensation and Benefits course and my topic is addressing fiduciary liability when providing advice for retirement plans. Through my research, I have realized there are many employees that are being educated on their company retirement plans but they are not being adviced on how to invest their money. One reason is because many employers fear that they will confront fiduciary liability for providing the advice.

My intentions for sending this email is in hopes to be provided any information on this topic. Personal experiences. Companies you may know of currently addressing this concern. Statistical data. Anything would be helpful.

Thank you,

Tina Elders

student

[Guest JF]

You may want to review the codes that describe 404©, especially when you are referring to the participant investing their money. Do a search on this in this Benefits area and you will probably get lots of information.

[QDROphile]

Don't miss Interpretive Bulletin 96-1, 61 Federal Register 295686, 29 CFR 2509.96-1. While you are doing your research, keep in mind that liability for investment advice arises primarily under securities laws rather than ERISA. Research about fiduciary liability is likely to limit you to the wrong track.

[pjkoehler]

The topic you are researching might be better framed as whether an employer's activities in providing investment education cause it to become a "fiduciary" under ERISA. Even if the employer is a "fiduciary" when it engages in such activities, it doesn't necessarily follow that it has fiduciary liability. That is a whole separate line of analysis that has to do whether in engaging in the activities that made the employer a fiduciary, the employer's acts or failure to act fell below ERISA standards of fiduciary responsibility. Employers, of course, realize that they can't have fiduciary liability if they aren't fiduciaries. Just keep in mind that the focal point is whether their activities cross the line from what the PWBA calls "investment education" in IB 96-1 and becomes a practice of "rendering investment advice for a fee," which is one of the three alternative definitions of "fiduciary" in ERISA. One interesting approach you might take is to contact the new online investment advisory firms like FinancialEngines.com and Morningstar.com. These firms enter into contracts with employers to provide online investment advice directly to 401(k) participants. They typically accept fiduciary responsibility for their services. The business objective is to fill the gap left by the "investment education" provided by the employer seeking to avoid classification as a "fiduciary." Does this work in sheltering the employer from fiduciary liability? What about the choice of advisory service firm? Is that a fiduciary decision? Try investigating www.financialengines.com as a beginning.

[This message has been edited by PJK (edited 04-20-2000).]