Client Alert

New DOL Guidance: Financial Services Firms Can Provide 401(k) Plan Participants with Asset Allocation Advice Payable out of Plan Assets: Advice may Result in Plan Investment in Funds Managed by the Ad

February 01, 2002

ERISA/Investment Management Practice Group

Many employers would like to have investment professionals provide guidance to 401(k) plan  participants in making investment decisions relating to the employees’ individual accounts, but do not do so because of ERISA prohibited transaction and liability concerns. However, the U.S. Department of Labor has issued a new Advisory Opinion, which indicates that an investment adviser’s provision of asset allocation services to 401(k) and similar individual account plan participants would not result in a prohibited transaction under ERISA – even where the asset allocation advice results in plan investments in funds managed by the adviser or its affiliate. The DOL’s position is premised on the condition that the asset allocation recommendations are the product of a computer program developed by an independent financial expert. The fee for the asset allocation services may be paid out of plan assets.

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