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August 22, 2008
Rule Proposed on Investment Advice Exemption for 401(k) Plans

The U.S. Department of Labor has published two proposed rules under the Pension Protection Act (PPA) aimed at making investment advice more accessible for individuals in 401(k) type plans and individual retirement accounts (IRAs).

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The proposed regulation and class exemption are published in the August 22, 2008 Federal Register.

The PPA amended the Employee Retirement Income Security Act (ERISA) by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice.

One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased, the other is through an adviser compensated on a "level-fee" basis. Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.

In December 2006, the department solicited public comments to determine what expertise and procedures may be needed to certify a computer model under the exemption, and to assist in developing a model form for the exemption's disclosure of adviser fees.

The proposed regulation provides general guidance on the exemption's requirements, including computer model certification, and includes a non-mandatory model form that advisers may use to satisfy the exemption's fee disclosure requirement. In addition, to further the availability of quality, professional investment advice, the department is proposing a class exemption that permits advisors to provide individualized advice to a worker after giving advice generated by use of a computer model.

Separately, the department also released its determination relating to the feasibility of using computer models for providing investment advice to participants of IRAs.

Written comments on the investment advice proposals should be addressed to the Office of Regulations and Interpretation, Employee Benefits Security Administration, Room N-5665, U. S. Department of Labor, 200 Constitution Ave., NW , Washington , D.C. 20210 , Attn: Investment Advice Regulations. The public also may submit comments electronically by email to e-ori@dol.gov, or through the federal e-rulemaking portal at www.regulations.gov .

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