While we should focus on protecting our client, the plan sponsor, from a fiduciary perspective, perhaps we should consider protecting ourselves when offering advice, solicited or unsolicited, to plan participants.
For example, a recent story in a trade publication cited statistics from the Investment Company Institute that seemingly indicated investors were fleeing stocks during the first seven months of 2010 and flocking to bonds.
According to ERISA, we have an obligation, as plan advisors, to provide plan participants with sufficient education to allow them to make informed choices. Are we able to advise plan participants that overloading in bonds might not be in their best interest, long term? The answer, according to the
Department of Labor, is maybe. If the information we provide to a plan participant is limited to:
- The range of investment options under the plan;
- The risk return profiles for each of the investment options, including past and current performances; and
- Hypothetical asset allocation models covering various time frames.
So, maybe we can. Generally. Provided we avoid any indication to the plan participant as to a specific course of action which encompasses a specific investment option. So, maybe we cannot. Generally. However, when dealing with plan participants and their proposed rollover options, the DOL takes a more restrictive approach. With a plan participant who is inquiring about the prudence of staying within the plan framework or considering a rollover, the Department of Labor (see Advisory Opinion 2005-23A) remains selectively vague in defining what we can and cannot do.
For example, a plan participant with whom you have been working inquires about the advisability of rolling over (and out) of the plan and looking for other investments at retirement. According to the Department of Labor (again) in Advisory Opinion 2005-23A, if we were to offer a researched response to this rational question, our response would constitute a recommendation. And, by doing so, we would be burdened (further) by the fiduciary constraints of ERISA. Maybe.
You see, the Department of Labor has not (yet) clarified its position on whether an advisor can provide the soon-to-be-retiring plan participant with suitable asset allocation models that extend beyond the boundaries of the plan.
And with baby boomers approaching and attaining the retirement age, it would be reasonable to expect some specificity as to what we can and cannot offer as advice in this situation. So, what can we do in this situation governed by the vague rules of the Department of Labor? The key guidelines for our behavior in a situation similar to the scenario above would best be defined as being instructive and informational.
In an effort to comply with the stipulation that a plan participant, whether approaching retirement or just enrolling, be provided with sufficient information to allow them to make an informed choice, so should any presentation to any participant be based upon information.
And our presentation to any plan participant should also provide the participant with sufficient tools to allow them to reach their decision. So, as the DOL contemplates, stay tuned.