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News Release

U.S. Department Of Labor's Leslie Kramerich Talks About Investment Advice Before Pension Actuaries

Archived News Release — Caution: Information may be out of date.

In a major address today before the American Society of Pension Actuaries Conference in Los Angeles, the U.S. Labor Department's Leslie Kramerich tackled the topic of investment advice -- a major concern of the federal agency she heads, the Pension and Welfare Benefits Administration.

Because of the increasing significance of defined contribution plans as major retirement savings vehicles for the American worker and the fact that many of these plans now require workers to make their own investment decisions, PWBA's Acting Assistant Secretary Kramerich answered many questions posed by the plan community since the department issued its interpretive bulletin on investment education versus advice in 1996.

Ms. Kramerich noted that the number of participants in defined contribution pension plans has grown to 78 million in 1998, with $2.4 trillion held in assets in 1999. Three-fourths of all workers are now enrolled in one of these plans -- either as their primary retirement plan or as a supplemental plan to the traditional ones offered by many of the larger employers. One of the most significant trends in employment-based benefits has been the increasing responsibility placed on American workers for their own retirement security. Every year, participants direct an estimated $70 to $80 billion in contributions to their 401(k) plans.

Ms. Kramerich talked about the agency's continuing work with the private employer community, employees, service providers and Congress to address existing impediments to providing workers with informed, unbiased and appropriate investment advice beyond offering general education about investing for their future retirement.

"We understand that some employers may be reluctant to provide advice out of concern that such activities give rise to fiduciary liability," Ms. Kramerich noted, "and we also believe that current law provides employers with considerable flexibility in responding to the advice needs of their employees without significant risk to the employers."

Then Ms. Kramerich outlined several salient points answering specific concerns voiced by the plan community about investment advice. They are detailed at length in her speech posted on the agency's website at under "News Room" and "What's New." In brief, Kramerich addressed:

Many workers need investment advice. Basically many workers are not schooled in complexities of investment management, risk/return strategies, asset allocation and diversification principles yet often have the responsibility for making investment decisions in their 401(k) plans.

Investment education is an important tool. When the department issued Interpretive Bulletin 96-1, it distinguished a variety of investment-related investment education activities from the fiduciary act of providing investment advice, and made clear that designating a person to provide investment advice to participants would not, in and of itself, give rise to liability for losses resulting from the individual participant's investment decisions.

Investment education may not be enough for some workers. Many workers may not wish to assume responsibility for making such decisions and may need professional advice. A plan may pay reasonable expenses in providing such investment advice to the plan's participants.

Employers are not liable for acts of investment advisors. IB 96-1 indicated that in ERISA Section 404(c) plans, the person designated to provide investment advice would not be liable for loss that is directly the result of the participant's exercise of control. As with any selection of a service provider, however, the plan fiduciary is still responsible for the prudent selection and periodic monitoring of the designated advisor.

Prudent selection of an investment advisor limits the employer's liability. The rules applying to the prudent selection of one or more investment advisors for plan participants are similar to those applying to selecting any plan service provider. Responsible plan fiduciaries must engage in an objective process to elicit information necessary to assess the provider's qualifications, quality of services offered and reasonableness of fees charged for the service. The process also should be designed to avoid self dealing, conflicts of interest or other improper influence.

Monitoring of investment advisors. In monitoring investment advisors, the department anticipates that fiduciaries will periodically review, among other things, the extent to which there have been any changes in the information which served as the basis for the initial selection of the investment advisor, utilization of the services by the participants, and participant comments and complaints.

U.S. Department of Labor news releases are accessible on the Internet. The information in this news release will be made available in alternate format upon request (large print, Braille, audio tape or disc) from the Central Office for Assistive Services and Technology. Please specify which news release when placing your request. Call 202.693.7773 or TTY 202.693.7775.

Archived News Release — Caution: Information may be out of date.

Employee Benefits Security Administration
September 15, 2000
Release Number
USDL 00-38