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Guidance on Investment Advice Exemption

The DOL?ÇÖs Employee Benefits Security Administration (the ?Ç£EBSA?Ç¥) recently released additional guidance on PTE 2020-02, Improving Investment Advice for Workers and Retirees, a new prohibited transaction exemption under ERISA that was adopted on December 18, 2020 (the ?Ç£Exemption?Ç¥) (see our prior blog posts about the Exemption here and here). The guidance consists of two documents: (i) a publication titled ?Ç£Choosing the Right Person to Give You Investment Advice: Information for Investors in Retirement Plans and Individual Retirement Accounts?Ç¥ (the ?Ç£Investor Guidance?Ç¥), and (ii) a publication titled ?Ç£New Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice for Workers & Retirees Frequently Asked Questions?Ç¥ (the ?Ç£Advisor Guidance?Ç¥). The Investor Guidance provides information on the Exemption for investors and includes a list of questions for investors to ask their investment advice providers, as well as a list of investor-focused FAQs. The Advisor Guidance is compliance focused and includes a list of FAQs targeted… Continue Reading

The DOL Announces a Non-Enforcement Policy on Final ESG Investment and Proxy Voting Rules

On March 10, 2021, the DOL released an enforcement policy statement (the ?Ç£Statement?Ç¥), which announced that until the DOL publishes further guidance, it will not enforce the recently issued ?Ç£Financial Factors in Selecting Plan Investments?Ç¥ final rule (the ?Ç£ESG Rule?Ç¥) and the ?Ç£Fiduciary Duties Regarding Proxy Voting and Shareholder Rights?Ç¥ final rule (the ?Ç£Proxy Voting Rule?Ç¥, together with the ESG Rule referred to herein as, the ?Ç£Final Rules?Ç¥). The ESG Rule generally required plan fiduciaries to select investments and investment courses of action based solely on consideration of ?Ç£pecuniary factors,?Ç¥ and the Proxy Voting Rule set forth a plan fiduciary?ÇÖs obligations when voting proxies and exercising other shareholder rights in connection with plan investments. The implementation of the ESG Rule in particular has caused concerns for plan fiduciaries about the use of environment, social, and governance considerations in its investment decisions and has been met with increasing criticism from a… Continue Reading

Is it Time for an Investment Committee Tune-up?

Companies sponsoring a 401(k) plan to help their employees save for retirement often form an investment committee to help select plan investments without realizing the duties that the committee assumes.?á To help prevent investment committee members from unintentionally breaching their fiduciary duties, companies periodically review their investment committee compliance and should keep complete records of appointments, policies, and procedures.?á The following investment committee checklist can be a starting point for this review: Review the underlying plan document to determine who it lists as the ?Ç£named fiduciary?Ç¥.?á Most plan documents provided by third party administrators list the ?Ç£plan sponsor?Ç¥ as the named fiduciary, which means the board of directors is the governing body responsible for acting as a fiduciary, absent a delegation of such fiduciary responsibility by the board of directors to a committee.?á If your plan lists the ?Ç£plan sponsor?Ç¥ as the named fiduciary and you have a committee selecting… Continue Reading

Review Investment Policy Statements for ESG Investment Compliance

The DOL recently updated its ?Ç£investment duties?Ç¥ regulation to provide further guidance in light of recent trends in environmental, social, and governance (?Ç£ESG?Ç¥) investing, which we previously posted on our blog here. As the DOL increases its investigations and inquiries into ESG investments held by retirement plans, plan fiduciaries should review their plan investments and policies to: (i) determine if their retirement plans hold any ESG-type investments, and (ii) if they do hold such investments, (a) review their investment policy statements (?Ç£IPS?Ç¥) and evaluate whether such policies comply with the current rules for ESG investments (and will comply going forward with the DOL?ÇÖs guidance), and (b) confirm whether such investments remain appropriate for the plan. Plan fiduciaries may need to consult with their financial/plan advisors to determine if ESG-type investments are currently held by their plan. If a plan holds ESG investments and the IPS does not address such investments,… Continue Reading

The New DOL Fiduciary Rule ?Çô A Return to the Old with a New Proposed Prohibited Transaction Exemption

On June 29, 2020, the DOL issued its much anticipated new ?Ç£fiduciary rule?Ç¥ under ERISA. The new rule is meant to replace the DOL?ÇÖs previous fiduciary rule (and related exemptions) which went into effect in 2016 but was vacated by the U.S. Court of Appeals for the Fifth Circuit in 2018. The new fiduciary rule is composed of two parts: (i) a final regulation which reaffirms and reinstates the five-part test for determining whether a person renders ?Ç£investment advice?Ç¥ for purposes of ERISA (the ?Ç£Reinstated Rule?Ç¥), and (ii) a new prohibited transaction class exemption for investment advice fiduciaries based on the ?Ç£impartial conduct standards?Ç¥ previously adopted by the DOL (the ?Ç£Proposed Exemption?Ç¥). Reinstated Rule The new rule amends the Code of Federal Regulations to reinstate the prior 1975 regulation which contained the five-part test for determining whether a financial institution or investment professional is a fiduciary for rendering ?Ç£investment advice.?Ç¥… Continue Reading

The DOL Says Certain Private Equity Investments May Be Permissible Designated Investment Alternatives Under Individual Accounts Plans

On June 3, 2020, the DOL issued an information letter addressing the possibility of including a private equity type investment as a ?Ç£designated investment alternative?Ç¥ under a participant directed individual account plan. The DOL concluded that, as a general matter, ?Ç£a plan fiduciary would not . . . violate [ERISA?ÇÖs fiduciary duties] solely because the fiduciary offers a professionally managed asset allocation fund with a private equity component as a designated investment alternative for an ERISA covered individual account plan in the manner described in [the] letter.?Ç¥ The DOL observed that private equity investments ?Ç£involve more complex organizational structures and investment strategies, longer time horizons, and more complex, and typically, higher fees?Ç¥ and they generally have ?Ç£different regulatory disclosure requirements, oversight, and controls?Ç¥ and ?Ç£often have no easily observed market value.?Ç¥ In addition to these considerations, the DOL listed several factors that plan fiduciaries should evaluate when considering whether a… Continue Reading

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