Interpretive Bulletin 96-1; Participant Investment Education

SUMMARY: This interpretive bulletin sets forth the views of the

Department of Labor (the Department) concerning the circumstances under

which the provision of investment-related information to participants

and beneficiaries in participant-directed individual account pension

plans will not constitute the rendering of ``investment advice'' under

the Employee Retirement Income Security Act of 1974, as amended

(ERISA). This guidance is intended to assist plan sponsors, service

providers, participants and beneficiaries in determining when

activities designed to educate and assist participants and

beneficiaries in making informed investment decisions will not cause

persons engaged in such activities to become fiduciaries with respect

to a plan by virtue of providing ``investment advice'' to plan

participants and beneficiaries for a fee or other compensation.

EFFECTIVE DATE: January 1, 1975.

FOR FURTHER INFORMATION CONTACT:

Bette J. Briggs or Teresa L. Turyn, Pension and Welfare Benefits

Administration, U.S. Department of Labor, 200 Constitution Ave. N.W.

Room N-5669, Washington, DC 20210, telephone (202) 219-8671, or Paul D.

Mannina, Plan Benefits Security Division, Office of the Solicitor, U.S.

Department of Labor, Washington, DC 20210, telephone (202) 219-4592.

These are not toll-free numbers.

SUPPLEMENTARY INFORMATION: In order to provide a concise and ready

reference to its interpretations of ERISA, the Department publishes its

interpretive bulletins in the Rules and Regulations section of the

Federal Register. Published in this issue of the Federal Register is

ERISA Interpretive Bulletin 96-1, which interprets section

3(21)(A)(ii), 29 U.S.C. 1002(21)(A)(ii), and the Department's

regulation issued thereunder at 29 CFR 2510.3-21(c). The Department is

publishing this interpretive bulletin because it believes there is a

need to clarify the circumstances under which the provision of

investment-related information to participants and beneficiaries will

not give rise to fiduciary status under ERISA section 3(21)(A)(ii).

(Sec. 505, Pub. L. 93-406, 88 Stat. 894 (29 U.S.C. 1135).)

Background

With the growth of participant-directed individual account pension

plans, more employees are directing the investment of their pension

plan assets and, thereby, assuming more responsibility for ensuring the

adequacy of their retirement income.* At the same time, there has been

an increasing concern on the part of the Department, employers and

others that many participants may not have a sufficient understanding

of investment principles and strategies to make their own informed

investment decisions. It has been represented to the Department that,

while a number of employers sponsoring participant-directed individual

account pension plans have instituted programs intended to educate

their employees about investment principles, financial planning and

retirement, many employers have not offered programs or offered only

limited programs due to uncertainty regarding the extent to which the

provision of investment-related information may be considered the

rendering of ``investment advice'' under section 3(21)(A)(ii) of ERISA,

resulting in fiduciary responsibility and potential liability in

connection with participant-directed investments. Although section

404(c) of ERISA, 29 U.S.C. 1104(c), and the Department's regulations,

at 29 CFR 2550.404c-1, provide limited relief from liability for

fiduciaries of pension plans that permit a participant or beneficiary

to exercise control over the assets in his or her individual account,

there remains a need for employers and others who provide investment

information with respect to pension plan assets to know what standards

apply in determining whether an education activity may give rise to

fiduciary status.

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* Under section 3(2) of ERISA, 29 U.S.C. 1002(2), the term

``pension plan'' encompasses any plan, fund or program established

or maintained by an employer or employee organization, or by both,

to the extent that by its express terms or as a result of

surrounding circumstances, it provides retirement income to

employees or results in a deferral of income by employees for

periods extending to the termination of covered employment or

beyond. The Department notes that, for purposes of Title I of ERISA,

an employer-sponsored individual retirement account (IRA) is

considered to be an individual account pension plan. See 29 CFR

2510.3-2(d).

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In view of the important role that investment education can play in

assisting participants and beneficiaries in making informed investment

and retirement-related decisions and the uncertainty relating to the

fiduciary implications of providing investment-related information to

participants and beneficiaries, the Department is clarifying, herein,

the application of ERISA's definition of the term ``fiduciary with

respect to a plan'' in section 3(21)(A)(ii) to the provision of

investment-related information to participants and beneficiaries.

Interpretive Bulletin 96-1 identifies categories of information and

materials regarding participant-directed individual account pension

plans that do not, in the view of the Department, constitute

``investment advice'' under the definition of ``fiduciary'' in ERISA

section 3(21)(A)(ii) and the corresponding regulation at 29 CFR 2510.3-

21(c)(1). The interpretive bulletin points out, in effect, a series of

graduated safe harbors under ERISA for plan sponsors and service

providers who provide participants and beneficiaries with four

increasingly specific categories of investment information and

materials--plan information, general financial and investment

information, asset allocation models and interactive investment

materials--as described in paragraph (d) of IB 96-1.

Comments on the Interpretive Bulletin

Interpretive Bulletin 96-1 was developed following extensive review

of educational materials currently being provided by plan sponsors and

service providers to participants. To further ensure that the guidance

provided would be helpful, and would promote increased and improved

participant education efforts, the Department also released an exposure

draft of the interpretive bulletin for public comment. The response to

the exposure draft was overwhelmingly positive. Both plan sponsor and

service provider representatives unequivocally agreed that the guidance

as drafted would strengthen participant investment education, and urged

the Department to proceed as expeditiously as possible to adopt the

interpretive bulletin. The commenters also suggested various technical

and clarifying changes which, as discussed below, have been included in

the interpretive bulletin.

Identifying Specific Investment Alternatives in Model Asset Allocations

The most frequent comment on the exposure draft concerned the safe

harbor provision in paragraphs (d)(3) (asset allocation models) and

(d)(4) (interactive investment materials) that if

[[Page 29587]]

a model asset allocation identifies or matches any specific investment

alternative available under the plan with a generic asset class, then

all investment alternatives under the plan with similar risk and return

characteristics must be similarly identified or matched. The commenters

were concerned that in plans with investment alternatives offered by

multiple service providers it would be difficult, and possibly

inappropriate, for one service provider to identify and describe a

competitor's products.

The requirement to identify other investment alternatives within an

asset class was intended to address the concern that a service provider

could effectively steer participants to a specific investment

alternative by identifying only one particular fund in connection with

an asset allocation model. Where it is possible to identify other

investment alternatives within an asset class, the Department

encourages service providers to do so. In response to the comments,

however, safe harbors (d)(3) and (d)(4) have been revised to provide

that, where an asset allocation model identifies any specific

investment alternative available under the plan, an accompanying

statement must indicate that other investment alternatives having

similar risk and return characteristics may be available under the

plan, and must identify where information on those investment

alternatives may be obtained.

The Fiduciary Safe Harbors and Section 404(c)

Several commenters requested clarification of the statement in the

exposure draft that issues relating to the circumstances under which

information provided to participants and beneficiaries may affect their

ability to exercise independent control for purposes of 404(c) are

outside the scope of the IB. The commenters were concerned that

activities which come within one of the safe harbors for participant

education may nevertheless be viewed by the Department as compromising

a participant's or beneficiary's ability to exercise independent

control under section 404(c).

Whether a participant or beneficiary has exercised independent

control over the assets in his or her individual account pursuant to

section 404(c) is necessarily a factual inquiry. In general, however,

the types of educational programs described in the safe harbors do not,

in the view of the Department, raise issues under section 404(c).

Accordingly, footnote 2 of IB 96-1 makes clear that the provision of

investment-related information and materials to participants and

beneficiaries in accordance with paragraph (d) of the IB will not, in

and of itself, affect the availability of relief from the fiduciary

responsibility provisions of ERISA that is provided by section 404(c).

Applying Asset Allocations to Individual Participants and Beneficiaries

A number of commenters asked the Department to clarify the

requirement to provide a statement that individual participants and

beneficiaries should consider their other assets, income or investments

(outside of the plan) when applying an asset allocation model or using

interactive investment materials. The commenters pointed out that, in

many instances, interactive models or materials already take into

account an individual's other assets. Accordingly, they requested

clarification that such models or materials come within the safe harbor

in paragraph (d)(4). Commenters were also concerned that given the

rationale for the safe harbor in paragraph (d)(4)--i.e. that

interactive investment models or materials enable participants and

beneficiaries independently to design and assess multiple asset

allocation models--the Department may have intended to exclude from the

safe harbors situations in which service providers assist individual

participants or beneficiaries to develop possible asset allocation

models based upon their personal financial information.

The provisions of the safe harbors are designed to ensure that

participants and beneficiaries will have adequate information to enable

them to make their own, informed asset allocation decisions. The

Department has clarified that the safe harbor in paragraph (d)(4) for

interactive investment materials would not be unavailable merely

because the asset allocation models generated by the materials take

into account a participant's or beneficiary's non-plan assets, income

and investments. Nor does the Department consider that the safe harbor

would be unavailable merely because participants and beneficiaries

receive personal assistance in developing model asset allocations. In

this regard, paragraph (d) of the IB states that providing the

categories of information identified in paragraph (d) will not in and

of itself constitute the rendering of ``investment advice''

irrespective of the form in which the materials are provided (e.g.,

whether on an individual or group basis, in writing or orally, or via

video or computer software). The interpretive bulletin also makes clear

that information and materials within each category may be furnished

alone or combined with information and materials from other categories.

For example, general financial and investment information on estimating

future retirement income needs, determining investment time horizons

and assessing risk tolerance, as described in paragraph (d)(2), may be

combined with interactive investment materials described in paragraph

(d)(4) in order to assist participants and beneficiaries to relate

basic retirement planning concepts to their individual situations.

Generally Accepted Investment Theories

Several commenters requested clarification of the requirement that

asset allocation models and interactive investment materials must be

based on ``generally accepted investment theories that take into

account the historic returns of different asset classes (e.g.,

equities, bonds, or cash) over defined periods of time.'' The

Department included this requirement to assure that, for purposes of

the safe harbors, any models or materials presented to participants or

beneficiaries will be consistent with widely accepted principles of

modern portfolio theory, recognizing the relationship between risk and

return, the historic returns of different asset classes, and the

importance of diversification.

Plan Sponsor or Fiduciary Endorsements of Service Providers

The commenters also requested clarification regarding the

circumstances in which a plan sponsor or fiduciary may be viewed as

having fiduciary responsibility by virtue of endorsing a third party

who has been selected by a participant or beneficiary to provide

participant education or investment advice. Commenters noted, for

example, that a plan sponsor may wish merely to provide office space or

make computer terminals available for use by a service provider that

has been selected by a participant or beneficiary to provide investment

education using interactive materials. Whether a plan sponsor or

fiduciary has effectively endorsed or made an arrangement with a

particular service provider is an inherently factual inquiry which

depends upon all the relevant facts and circumstances. It is the

Department's view, however, that a uniformly applied policy of

providing office space or computer terminals for use by participants or

beneficiaries who have independently selected a service provider to

provide investment

[[Page 29588]]

education would not, in and of itself, constitute an endorsement of or

arrangement with the service provider for purposes of the IB.

Participation Rates, Contribution Levels and Preretirement Withdrawals

With the objective of distinguishing between investment education

and investment advice, IB 96-1 focuses primarily on educational

activities relating to investment decision-making. However, as

suggested in a recent study by the Employee Benefits Research Institute

(EBRI), which was commissioned by the Department of Labor, plan

participants also need to be informed about the impact on retirement

savings of preretirement withdrawals and other fundamental principles

regarding plan participation and contribution levels. According to the

EBRI study, the impact of preretirement withdrawals on retirement

income is one of the least often provided topics and could have serious

consequences for the adequacy of employees' retirement income. The

Department, therefore, encourages educational service providers to

emphasize that participants should: (1) participate in available plans

as soon as they are eligible; (2) make the maximum contribution

possible to the plan; and(3) if they change employment, refrain from

withdrawing their retirement savings, and opt instead to directly

transfer or roll over their plan account into an IRA or other

retirement vehicle. Such information relating to plan participation is

specifically encompassed within the safe harbor in paragraph (d)(1) of

IB 96-1.

Application of the Investment Advisers Act of 1940

Employer sponsors of participant-directed individual account

pension plans that provide investment-related information to employees

who are participants in those plans have also raised questions

regarding their status under the Investment Advisers Act of 1940, 15

U.S.C. 80b-1 et seq., (``Advisers Act''). In this regard, the staff of

the Division of Investment Management of the Securities and Exchange

Commission (SEC) has advised the Department of Labor that, generally,

employers who provide their employees with investment information

including, but not limited to, the type described in paragraph (d) of

IB 96-1 would not be subject to registration or regulation under the

Advisers Act. This position applies only to employers who provide such

information, and not to third-party service providers, whose status

under the Adviser's Act must be determined independently. See Letters

from Jack W. Murphy, Associate Director (Chief Counsel), Division of

Investment Management, SEC, to Olena Berg, Assistant Secretary, Pension

and Welfare Benefit Administration, U.S. Department of Labor, dated

February 22, 1996, and December 5, 1995. Persons who have questions

regarding this issue are directed to contact the Office of the Chief

Counsel, Division of Investment Management, at (202) 942-0660. This is

not a toll free number.

Executive Order 12866

Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the

Department must determine whether the regulatory action is

``significant'' and therefore subject to review by the Office of

Management and Budget (OMB) and the requirements of the Executive

Order. Under section 3(f), the order defines a ``significant regulatory

action'' as an action that is likely to result in, among other things,

a rule raising novel policy issues arising out of the President's

priorities.

Pursuant to the terms of the Executive Order, the Department has

determined that this regulatory action is a ``significant regulatory

action'' as that term is used a Executive Order 12866 because the

action would raise novel policy issues arising out of the President's

priorities. Thus, the Department believes this notice is

``significant,'' and subject to OMB review on that basis. OMB has

reviewed this rule.

Paperwork Reduction Act

The regulation being issued here is not subject to the requirements

of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) because

it does not contain an ``information collection request'' as defined in

44 U.S.C. 3502 (4).

Small Business Regulatory Enforcement Fairness Act

The regulation being issued here is subject to the provisions of

the Small Business Regulatory Enforcement Fairness Act of 1996 (5

U.S.C. 801 et. seq.) and has been transmitted to Congress and the

Comptroller General for review.

List of Subjects in 29 CFR Part 2509

Employee benefits plans, Pensions.

For the reasons set forth above, Part 2509 of Title 29 of The Code

of Federal Regulations is amended as follows:

PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE

RETIREMENT INCOME SECURITY ACT OF 1974

1. The authority citation for Part 2509 continues to read as

follows:

Authority: 29 U.S.C. 1135. Section 2509.75-1 is also issued

under 29 U.S.C. 1114. Sections 2509.75-10 and 2509.75-2 are also

issued under 29 U.S.C. 1052, 1053, 1054. Secretary of Labor's Order

No. 1-87 (52 FR 13139).

2. Part 2509 is amended by adding new Sec. 2509.96-1 to read as

follows:

Sec. 2509.96-1 Interpretive Bulletin Relating to Participant

Investment Education.

(a) Scope. This interpretive bulletin sets forth the Department

of Labor's interpretation of section 3(21)(A)(ii) of the Employee

Retirement Income Security Act of 1974, as amended (ERISA), and 29

CFR 2510.3-21(c) as applied to the provision of investment-related

educational information to participants and beneficiaries in

participant-directed individual account pension plans (i.e., pension

plans that permit participants and beneficiaries to direct the

investment of assets in their individual accounts, including plans

that meet the requirements of the Department's regulations at 29 CFR

2550.404c-1).

(b) General. Fiduciaries of an employee benefit plan are charged

with carrying out their duties prudently and solely in the interest

of participants and beneficiaries of the plan, and are subject to

personal liability to, among other things, make good any losses to

the plan resulting from a breach of their fiduciary duties. ERISA

sections 403, 404 and 409, 29 U.S.C. 1103, 1104, and 1109. Section

404(c) of ERISA provides a limited exception to these rules for a

pension plan that permits a participant or beneficiary to exercise

control over the assets in his or her individual account. The

Department of Labor's regulation, at 29 CFR 2550.404c-1, describes

the kinds of plans to which section 404(c) applies, the

circumstances under which a participant or beneficiary will be

considered to have exercised independent control over the assets in

his or her account, and the consequences of a participant's or

beneficiary's exercise of such control.\1\

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\1\ The section 404(c) regulation conditions relief from

fiduciary liability on, among other things, the participant or

beneficiary being provided or having the opportunity to obtain

sufficient investment information regarding the investment

alternatives available under the plan in order to make informed

investment decisions. Compliance with this condition, however, does

not require that participants and beneficiaries be offered or

provided either investment advice or investment education, e.g.

regarding general investment principles and strategies, to assist

them in making investment decisions. 29 CFR 2550.404c-1(c)(4).

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With both an increase in the number of participant-directed

individual account plans and the number of investment options

available to participants and beneficiaries under such plans, there

has been an increasing recognition of the importance of providing

participants and beneficiaries,

[[Page 29589]]

whose investment decisions will directly affect their income at

retirement, with information designed to assist them in making

investment and retirement-related decisions appropriate to their

particular situations. Concerns have been raised, however, that the

provision of such information may in some situations be viewed as

rendering ``investment advice for a fee or other compensation,''

within the meaning of ERISA section 3(21)(A)(ii), thereby giving

rise to fiduciary status and potential liability under ERISA for

investment decisions of plan participants and beneficiaries.

In response to these concerns, the Department of Labor is

clarifying herein the applicability of ERISA section 3(21)(A)(ii)

and 29 CFR 2510.3-21(c) to the provision of investment-related

educational information to participants and beneficiaries in

participant directed individual account plans.\2\ In providing this

clarification, the Department does not address the ``fee or other

compensation, direct or indirect,'' which is a necessary element of

fiduciary status under ERISA section 3(21)(A)(ii).\3\

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\2\ Issues relating to the circumstances under which information

provided to participants and beneficiaries may affect a

participant's or beneficiary's ability to exercise independent

control over the assets in his or her account for purposes of relief

from fiduciary liability under ERISA section 404(c) are beyond the

scope of this interpretive bulletin. Accordingly, no inferences

should be drawn regarding such issues. See 29 CFR 2550.404c-1(c)(2).

It is the view of the Department, however, that the provision of

investment-related information and material to participants and

beneficiaries in accordance with paragraph (d) of this interpretive

bulletin will not, in and of itself, affect the availability of

relief under section 404(c).

\3\ The Department has expressed the view that, for purposes of

section 3(21)(A)(ii), such fees or other compensation need not come

from the plan and should be deemed to include all fees or other

compensation incident to the transaction in which the investment

advise has been or will be rendered. See A.O. 83-60A (Nov. 21,

1983); Reich v. McManus, 883 F. Supp. 1144 (N.D. Ill. 1995).

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(c) Investment Advice. Under ERISA section 3(21)(A)(ii), a

person is considered a fiduciary with respect to an employee benefit

plan to the extent that person ``renders investment advice for a fee

or other compensation, direct or indirect, with respect to any

moneys or other property of such plan, or has any authority to do so

* * *.'' The Department issued a regulation, at 29 CFR 2510.3-21(c),

describing the circumstances under which a person will be considered

to be rendering ``investment advice'' within the meaning of section

3(21)(A)(ii). Because section 3(21)(A)(ii) applies to advice with

respect to ``any moneys or other property'' of a plan and 29 CFR

2510.3-21(c) is intended to clarify the application of that section,

it is the view of the Department of Labor that the criteria set

forth in the regulation apply to determine whether a person renders

``investment advice'' to a pension plan participant or beneficiary

who is permitted to direct the investment of assets in his or her

individual account.

Applying 29 CFR 2510.3-21(c) in the context of providing

investment-related information to participants and beneficiaries of

participant-directed individual account pension plans, a person will

be considered to be rendering ``investment advice,'' within the

meaning of ERISA section 3(21)(A)(ii), to a participant or

beneficiary only if: (i) the person renders advice to the

participant or beneficiary as to the value of securities or other

property, or makes recommendations as to the advisability of

investing in, purchasing, or selling securities or other property

(2510.3-21(c)(1)(i); and (ii) the person, either directly or

indirectly, (A) has discretionary authority or control with respect

to purchasing or selling securities or other property for the

participant or beneficiary (2510.3-21(c)(1)(ii)(A)), or (B) renders

the advice on a regular basis to the participant or beneficiary,

pursuant to a mutual agreement, arrangement or understanding

(written or otherwise) with the participant or beneficiary that the

advice will serve as a primary basis for the participant's or

beneficiary's investment decisions with respect to plan assets and

that such person will render individualized advice based on the

particular needs of the participant or beneficiary (2510.3-

21(c)(1)(ii)(B)).\4\

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\4\ This IB does not address the application of 29 CFR 2510.3-

21(c) to communications with fiduciaries of participant-directed

individual account pension plan plans.

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Whether the provision of particular investment-related

information or materials to a participant or beneficiary constitutes

the rendering of ``investment advice,'' within the meaning of 29 CFR

2510.3-21(c)(1), generally can be determined only by reference to

the facts and circumstances of the particular case with respect to

the individual plan participant or beneficiary. To facilitate such

determinations, however, the Department of Labor has identified, in

paragraph (d), below, examples of investment-related information and

materials which if provided to plan participants and beneficiaries

would not, in the view of the Department, result in the rendering of

``investment advice'' under ERISA section 3(21)(A)(ii) and 29 CFR

2510.3-21(c).

(d) Investment Education. For purposes of ERISA section

3(21)(A)(ii) and 29 CFR 2510.3-21(c), the Department of Labor has

determined that the furnishing of the following categories of

information and materials to a participant or beneficiary in a

participant-directed individual account pension plan will not

constitute the rendering of ``investment advice,'' irrespective of

who provides the information (e.g., plan sponsor, fiduciary or

service provider), the frequency with which the information is

shared, the form in which the information and materials are provided

(e.g., on an individual or group basis, in writing or orally, or via

video or computer software), or whether an identified category of

information and materials is furnished alone or in combination with

other identified categories of information and materials.

(1) Plan Information. (i) 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, or the operation of the plan; or

(ii) information such as that described in 29 CFR 2550.404c-

1(b)(2)(i) on investment alternatives under the plan (e.g.,

descriptions of investment objectives and philosophies, risk and

return characteristics, historical return information, or related

prospectuses).\5\

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\5\ Descriptions of investment alternatives under the plan may

include information relating to the generic asset class (e,g,,

equities, bonds, or cash) of the investment alternatives. 29 CFR

2550.404c-1(b)(2)(i)(B)(1) (ii).

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The information and materials described above relate to the plan

and plan participation, without reference to the appropriateness of

any individual investment option for a particular participant or

beneficiary under the plan. The information, therefore, does not

contain either ``advice'' or ``recommendations'' within the meaning

of 29 CFR 2510.3-21(c)(1)(i). Accordingly, the furnishing of such

information would not constitute the rendering of ``investment

advice'' for purposes of section 3(21)(A)(ii) of ERISA.

(2) General Financial and Investment Information. Information

and materials that inform a participant or beneficiary about: (i)

General financial and investment concepts, such as risk and return,

diversification, dollar cost averaging, compounded return, and tax

deferred investment; (ii) historic differences in rates of return

between different asset classes (e.g., equities, bonds, or cash)

based on standard market indices; (iii) effects of inflation; (iv)

estimating future retirement income needs; (v) determining

investment time horizons; and (vi) assessing risk tolerance.

The information and materials described above are general

financial and investment information that have no direct

relationship to investment alternatives available to participants

and beneficiaries under a plan or to individual participants or

beneficiaries. The furnishing of such information, therefore, would

not constitute rendering ``advice'' or making ``recommendations'' to

a participant or beneficiary within the meaning of 29 CFR 2510.3-

21(c)(1)(i). Accordingly, the furnishing of such information would

not constitute the rendering of ``investment advice'' for purposes

of section 3(21)(A)(ii) of ERISA.

(3) Asset Allocation Models. Information and materials (e.g.,

pie charts, graphs, or case studies) that provide a participant or

beneficiary with models, available to all plan participants and

beneficiaries, of asset allocation portfolios of hypothetical

individuals with different time horizons and risk profiles, where:

(i) Such models are based on generally accepted investments theories

that take into account the historic returns of different asset

classes (e.g., equities, bonds, or cash) over define periods of

time; (ii) all material facts and assumptions on which such models

are based (e.g., retirement ages, life expectancies, income levels,

financial resources, replacement income ratios, inflation rates, and

rates of return) accompany the models; (iii) to the extent that an

asset allocation model identifies any specific investment

alternative available under the plan, the

[[Page 29590]]

model is accompanied by a statement indicating that other investment

alternatives having similar risk and return characteristics may be

available under the plan and identifying where information on those

investment alternatives may be obtained; and (iv) the asset

allocation models are accompanied by a statement indicating that, in

applying particular asset allocation models to their individual

situations, participants or beneficiaries should consider their

other assets, income, and investments (e.g., equity in a home, IRA

investments, savings accounts, and interests in other qualified and

non-qualified plans) in addition to their interests in the plan.

Because the information and materials described above would

enable a participant or beneficiary to assess the relevance of an

asset allocation model to his or her individual situation, the

furnishing of such information would not constitute a

``recommendation'' within the meaning of 29 CFR 2510.3-21(c)(1)(i)

and, accordingly, would not constitute ``investment advice'' for

purposes of section 3(21)(A)(ii) of ERISA. This result would not, in

the view of the Department, be affected by the fact that a plan

offers only one investment alternative in a particular asset class

identified in an asset allocation model.

(4) Interactive Investment Materials. Questionnaires,

worksheets, software, and similar materials which provide a

participant or beneficiary 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 (e.g., equities, bonds, or cash)

over defined periods of time; (ii) there is an objective correlation

between the asset allocations generated by the materials and the

information and data supplied by the participant or beneficiary;

(iii) all material facts and assumptions (e.g., retirement ages,

life expectancies, income levels, financial resources, replacement

income ratios, inflation rates, and rates of return) which may

affect a participant's or beneficiary's assessment of the different

asset allocations accompany the materials or are specified by the

participant or beneficiary; (iv) to the extent that an asset

allocation generated by the materials identifies any specific

investment alternative available under the plan, the asset

allocation is accompanied by a statement indicating that other

investment alternatives having similar risk and return

characteristics may be available under the plan and identifying

where information on those investment alternatives may be obtained;

and (v) the materials either take into account or are accompanied by

a statement indicating that, in applying particular asset

allocations to their individual situations, participants or

beneficiaries should consider their other assets, income, and

investments (e.g., equity in a home, IRA investments, savings

accounts, and interests in other qualified and non-qualified plans)

in addition to their interests in the plan.

The information provided through the use of the above-described

materials enables participants and beneficiaries independently to

design and assess multiple asset allocation models, but otherwise

these materials do not differ from asset allocation models based on

hypothetical assumptions. Such information would not constitute a

``recommendation'' within the meaning of 29 CFR 2510.3-21(c)(1)(i)

and , accordingly, would not constitute ``investment advice'' for

purposes of section 3(21)(A)(ii) of ERISA.

The Department notes that the information and materials

described in subparagraphs (1)-(4) above merely represent examples

of the type of information and materials which may be furnished to

participants and beneficiaries without such information and

materials constituting ``investment advice.'' In this regard, the

Department recognizes that there may be many other examples of

information, materials, and educational services which, if furnished

to participants and beneficiaries, would not constitute ``investment

advice.'' Accordingly, no inferences should be drawn from

subparagraphs (1)-(4), above, with respect to whether the furnishing

of any information, materials or educational services not described

therein may constitute ``investment advice.'' Determinations as to

whether the provision of any information, materials or educational

services not described herein constitutes the rendering of

``investment advice'' must be made by reference to the criteria set

forth in 29 CFR 2510. 3-21(c)(1).

(e) Selection and Monitoring of Educators and Advisors. As with

any designation of a service provider to a plan, the designation of

a person(s) to provide investment educational services or investment

advice to plan participants and beneficiaries is an exercise of

discretionary authority or control with respect to management of the

plan; therefore, persons making the designation must act prudently

and solely in the interest of the plan participants and

beneficiaries, both in making the designation(s) and in continuing

such designation(s). See ERISA sections 3(21)(A)(i) and 404(a), 29

U.S.C. 1002 (21)(A)(i) and 1104(a). In addition, the designation of

an investment advisor to serve as a fiduciary may give rise to co-

fiduciary liability if the person making and continuing such

designation in doing so fails to act prudently and solely in the

interest of plan participants and beneficiaries; or knowingly

participates in, conceals or fails to make reasonable efforts to

correct a known breach by the investment advisor. See ERISA section

405(a), 29 U.S.C. 1105(a). The Department notes, however, that, in

the context of an ERISA section 404(c) plan, neither the designation

of a person to provide education nor the designation of a fiduciary

to provide investment advice to participants and beneficiaries

would, in itself, give rise to fiduciary liability for loss, or with

respect to any breach of part 4 of title I of ERISA, that is the

direct and necessary result of a participant's or beneficiary's

exercise of independent control. 29 CFR 2550.404c-1(d). The

Department also notes that a plan sponsor or fiduciary would have no

fiduciary responsibility or liability with respect to the actions of

a third party selected by a participant or beneficiary to provide

education or investment advice where the plan sponsor or fiduciary

neither selects nor endorses the educator or advisor, nor otherwise

makes arrangements with the educator or advisor to provide such

services.

Signed at Washington, DC, this 30th day of May, 1996.

Olena Berg,

Assistant Secretary, Pension and Welfare, Benefits Administration, U.S.

Department of Labor.

[FR Doc. 96-14093 Filed 6-10-96; 8:45 am]

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