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Employee Benefits Security Administration

EBSA (formerly PWBA) Final Rule

Interpretive Bulletin 96-1; Participant Investment Education; Final Rule [06/11/1996]

[PDF Version]

Volume 61, Number 113, Page 29585-29590

[[Page 29585]]


_______________________________________________________________________

Part II





Department of Labor





_______________________________________________________________________



Pension and Welfare Benefits Administration



_______________________________________________________________________



29 CFR Part 2509



Interpretive Bulletin 96-1; Participant Investment Education; Final 
Rule


[[Page 29586]]



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.

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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 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, 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.
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    * 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 employer-sponsored individual retirement account (IRA) is 
considered to be an individual account pension plan. See 29 CFR 
2510.3-2(d).
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    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 96-1 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

[[Page 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

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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 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, 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 Sec. 2509.96-1 to read as 
follows:


Sec. 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 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 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\
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    \1\ The 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).
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    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,

[[Page 29589]]

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\
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    \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).
    \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 
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).
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    (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\
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    \4\ This 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.
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    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\
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    \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 
2550.404c-1(b)(2)(i)(B)(1) (ii).
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    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

[[Page 29590]]

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]
BILLING CODE 4510-29-M