More restrictive investment advice regulations are coming now that the Labor Department has killed a controversial Bush administration proposal that would have permitted the mutual fund industry to provide direct investment advice to defined contribution plan participants.
The key question remaining is how narrow the new Obama administration advice regulations will be, ERISA attorneys and pension industry lobbyists said.
“Hopefully they (DOL) won't interpret the statute (the Pension Protection Act wording on investment advice) so narrowly that it doesn't do anything for those trying to use it,” said Andrew Oringer, an ERISA attorney for Ropes & Gray LLP, New York.
ERISA attorneys also warned that the DOL's new rules could be particularly damaging to the mutual fund industry if they undermine a Feb. 2, 2007, DOL Field Assistance Bulletin. That bulletin interpreted the investment advice provisions in the PPA to permit direct advice, as long as the fund's advice provider worked for a separate affiliate of the fund and the fees received by the separate affiliate didn't vary depending on the selection of the investment options.
Among the mutual fund companies offering advice arrangements that depend at least in part on that interpretation is Vanguard Group, Malvern, Pa., said Linda Wolohan, a company spokeswoman.
“If the FAB goes, then it (DOL's proposed rule) could be incredibly disruptive, because there are advice programs out there that rely on the FAB,” said Jason Bortz, an ERISA attorney with the law firm Davis & Harman LLP, Washington.
“For anyone who has tried to implement an advice program under existing authority, it is possible that final (DOL) regulations could require substantial revision,” added Mr. Oringer.
Phyllis Borzi, assistant secretary of labor of the Employee Benefits Security Administration, did not return phone calls.