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Education vs. Advice, Knowing Where the Line is
Last Updated: December 18, 2013
Prior to 1996, many plan sponsors were not providing financial education because it wasn’t clear to what extent the provision of providing investment-related education or information might actually be considered providing investment advice, resulting in fiduciary responsibility and potential liability regarding participant-directed investments. In an effort to make a clear distinction between education and advice services, the DOL created the Interpretive Bulletin 96-1. The Bulletin sets forth four distinct safe harbors that allow advisers to provide retirement education to plan participants without it being considered investment advice.
Here is an overview of each of these four safe harbors:
1) Plan Information
i. You may provide 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, and the general operation of the plan.
ii. Descriptions of investment alternatives under the plan may include information relating to the generic asset class of the investment alternatives. You may provide descriptions of investment objectives and philosophies, risk and return characteristics, historical return information, or related prospectuses. The information and materials provided must relate to the plan and plan participant, without reference to the appropriateness of any individual investment option for a particular participant under the plan.
2) General Financial and Investment Information
You may discuss general financial and investment concepts, such as:
i. Risk and return, diversification, compounded returns, and tax deferred investing.
ii. Historic differences in rates of return between different asset classes (e.g. Stocks, Bonds, Cash) based on standard market indices.
iii. Effects of inflation, future retirement income needs, risk tolerance and investment time horizons.
3) Asset Allocation Models
You may provide information and materials (e.g. pie charts, graphs, or case studies) that include models of asset allocation portfolios of hypothetical individuals with different time horizons and risk profiles, made available to all plan participants and beneficiaries, where:
i. The models are based on generally accepted investment theories that take the historic returns of different asset classes over a defined period into account, and
ii. All material facts and assumptions on which the models are based must accompany the models, and
iii. Where the models include a statement that indicates other investment alternatives with similar risk and return characteristics may be available under the plan, must specify where information on those investments may be obtained, and
iv. The models must be accompanied by a statement indicating participants and beneficiaries should consider other assets, income, and investments in addition to their interests in the plan when applying particular asset allocation models.
4) Interactive Investment Models
You may provide questionnaires, worksheets, software, and similar materials that provide a participant 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, and
ii. There is objective correlation between the asset allocations generated by the materials and the information and data supplied by the participant, and
iii. All material facts and assumptions that may affect a participant’s assessment of the different asset allocations accompany the materials or are specified by the participant, and
iv. If an asset allocation generated by the materials identifies any specific investment alternative available under the plan, it is accompanied by a statement indicating that other investment alternatives with similar risk and return may be available under the plan, and where those alternatives may be found, and
v. The materials either take into account or are accompanied by a statement indicating that in applying particular asset allocations to individual situations, participants should consider their other assets, income, and investments in addition to their interests in the plan.
Our consultants are well-versed in DOL Interpretive Bulletin 96-1’s educational standards, which helps protect employers from findings that could subject them to unwarranted penalties or claims. As salaried, non-commissioned, employees the RetireAdvisers® team is able to provide education and advice based solely on participants’ best interest to help them prepare for retirement. For more information on the DOL’s Interpretive Bulletin 96-1 and understanding its educational standards to protect from penalties, contact the RetireAdvisers® team at Pension Consultants.
* http://www.dol.gov/ebsa/regs/fedreg/final/96_14093.htm
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