Investment Advice-Participants and Beneficiaries, 66136-66167 [2011-26261]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 76, Number 206 (Tuesday, October 25, 2011)]
[Rules and Regulations]
[Pages 66136-66167]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26261]



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Vol. 76

Tuesday,

No. 206

October 25, 2011

Part II





Department of Labor





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Employee Benefits Security Administration





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29 CFR Part 2550





Investment Advice; Participants and Beneficiaries; Final Rule

Federal Register / Vol. 76 , No. 206 / Tuesday, October 25, 2011 / 
Rules and Regulations

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

RIN 1210-AB35


Investment Advice--Participants and Beneficiaries

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Final rule.

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SUMMARY: This document contains a final rule under the Employee 
Retirement Income Security Act, and parallel provisions of the Internal 
Revenue Code of 1986, relating to the provision of investment advice to 
participants and beneficiaries in individual account plans, such as 
401(k) plans, and beneficiaries of individual retirement accounts (and 
certain similar plans). The final rule affects sponsors, fiduciaries, 
participants and beneficiaries of participant-directed individual 
account plans, as well as providers of investment and investment advice 
related services to such plans.

DATES: The final rule is effective on December 27, 2011.

FOR FURTHER INFORMATION CONTACT: Fred Wong, Office of Regulations and 
Interpretations, Employee Benefits Security Administration (EBSA), 
(202) 693-8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 3(21)(A)(ii) of the Employee Retirement Income Security Act 
of 1974 (ERISA) and section 4975(e)(3)(B) of the Internal Revenue Code 
of 1986 (Code) include within the definition of ``fiduciary'' a person 
that renders investment advice for a fee or other compensation, direct 
or indirect, with respect to any moneys or other property of a plan, or 
has any authority or responsibility to do so.\1\ The prohibited 
transaction provisions of ERISA and the Code prohibit a fiduciary from 
dealing with the assets of the plan in his own interest or for his own 
account and from receiving any consideration for his own personal 
account from any party dealing with such plan in connection with a 
transaction involving the assets of the plan.\2\ These statutory 
provisions have been interpreted as prohibiting a fiduciary from using 
the authority, control or responsibility that makes it a fiduciary to 
cause itself, or a party in which it has an interest that may affect 
its best judgment as a fiduciary, to receive additional fees.\3\ As a 
result, in the absence of a statutory or administrative exemption, 
fiduciaries are prohibited from rendering investment advice to plan 
participants regarding investments that result in the payment of 
additional advisory and other fees to the fiduciaries or their 
affiliates. Section 4975 of the Code applies similarly to the rendering 
of investment advice to an individual retirement account (IRA) 
beneficiary.
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    \1\ See also 29 CFR 2510.3-21(c) and 26 CFR 54.4975-9(c).
    \2\ ERISA section 406(b)(1) and (3) and Code section 
4975(c)(1)(E) and (F).
    \3\ 29 CFR 2550.408b-2(e).
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    With the growth of participant-directed individual account plans, 
there has been an increasing recognition of the importance of 
investment advice to participants and beneficiaries in such plans. Over 
the past several years, the Department of Labor (Department) has issued 
various forms of guidance concerning when a person would be a fiduciary 
by reason of rendering investment advice, and when such investment 
advice might result in prohibited transactions.\4\ Responding to the 
need to afford participants and beneficiaries greater access to 
professional investment advice, Congress amended the prohibited 
transaction provisions of ERISA and the Code, as part of the Pension 
Protection Act of 2006 (PPA),\5\ to permit a broader array of 
investment advice providers to offer their services to participants and 
beneficiaries responsible for investment of assets in their individual 
accounts and, accordingly, for the adequacy of their retirement 
savings.
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    \4\ See Interpretative Bulletin relating to participant 
investment education, 29 CFR 2509.96-1 (Interpretive Bulletin 96-1); 
Advisory Opinion (AO) 2005-10A (May 11, 2005); AO 2001-09A (December 
14, 2001); and AO 97-15A (May 22, 1997).
    \5\ Public Law 109-280, 120 Stat. 780 (Aug. 17, 2006).
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    Specifically, section 601 of the PPA added a statutory prohibited 
transaction exemption under sections 408(b)(14) and 408(g) of ERISA, 
with parallel provisions at Code sections 4975(d)(17) and 
4975(f)(8).\6\ Section 408(b)(14) sets forth the investment advice-
related transactions that will be exempt from the prohibitions of ERISA 
section 406 if the requirements of section 408(g) are met. The 
transactions described in section 408(b)(14) are: the provision of 
investment advice to the participant or beneficiary with respect to a 
security or other property available as an investment under the plan; 
the acquisition, holding or sale of a security or other property 
available as an investment under the plan pursuant to the investment 
advice; and the direct or indirect receipt of compensation by a 
fiduciary adviser or affiliate in connection with the provision of 
investment advice or the acquisition, holding or sale of a security or 
other property available as an investment under the plan pursuant to 
the investment advice. As described more fully below, the requirements 
in section 408(g) are met only if advice is provided by a fiduciary 
adviser under an ``eligible investment advice arrangement.'' Section 
408(g) provides for two general types of eligible arrangements: one 
based on compliance with a ``fee-leveling'' requirement (imposing 
limitation on fees and compensation of the fiduciary adviser); the 
other, based on compliance with a ``computer model'' requirement 
(requiring use of a certified computer model). Both types of 
arrangements also must meet several other requirements.
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    \6\ Under Reorganization Plan No. 4 of 1978 (43 FR 47713, Oct. 
17, 1978), 5 U.S.C. App. 1, 92 Stat. 3790, the authority of the 
Secretary of the Treasury to issue rulings under section 4975 of the 
Code has been transferred, with certain exceptions not here 
relevant, to the Secretary of Labor. Therefore, the references in 
this notice to specific sections of ERISA should be taken as 
referring also to the corresponding sections of the Code.
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    On February 2, 2007, the Department issued Field Assistance 
Bulletin (FAB) 2007-01 addressing certain issues presented by the new 
statutory exemption. This Bulletin affirmed that the enactment of 
sections 408(b)(14) and 408(g) did not invalidate or otherwise affect 
prior guidance of the Department relating to investment advice and that 
such guidance continues to represent the views of the Department.\7\ 
The Bulletin also confirmed the applicability of the principles set 
forth in section 408(g)(10) [Exemption for plan sponsor and certain 
other fiduciaries] \8\ to plan

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sponsors and fiduciaries who offer investment advice arrangements with 
respect to which relief under the statutory exemption is not required. 
Finally, the Bulletin addressed the scope of the fee-leveling 
requirement under the statutory exemption.
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    \7\ In this regard, the Department cited the following: August 
3, 2006 Floor Statement of Senate Health, Education, Labor and 
Pensions Committee Chairman Enzi (who chaired the Conference 
Committee drafting legislation forming the basis of H.R. 4) 
regarding investment advice to participants in which he states, ``It 
was the goal and objective of the Members of the Conference to keep 
this advisory opinion [AO 2001-09A, SunAmerica Advisory Opinion] 
intact as well as other pre-existing advisory opinions granted by 
the Department. This legislation does not alter the current or 
future status of the plans and their many participants operating 
under these advisory opinions. Rather, the legislation builds upon 
these advisory opinions and provides alternative means for providing 
investment advice which is protective of the interests of plan 
participants and IRA owners.'' 152 Cong. Rec. S8,752 (daily ed. Aug. 
3, 2006) (statement of Sen. Enzi).
    \8\ Section 408(g)(10) addresses the responsibility and 
liability of plan sponsors and other fiduciaries in the context of 
investment advice provided pursuant to the statutory exemption. 
Subject to certain requirements, section 408(g)(10) provides that a 
plan sponsor or other person who is a plan fiduciary, other than a 
fiduciary adviser, is not treated as failing to meet the fiduciary 
requirements of ERISA solely by reason of the provision of 
investment advice as permitted by the statutory exemption. This 
provision does not exempt a plan sponsor or a plan fiduciary from 
fiduciary responsibility under ERISA for the prudent selection and 
periodic review of the selected fiduciary adviser.
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    On January 21, 2009, the Department published in the Federal 
Register final rules implementing section 408(b)(14) and 408(g) of 
ERISA, and the parallel provisions in the Code.\9\ The final rules also 
included an administrative class exemption, adopted pursuant to ERISA 
section 408(a), granting additional prohibited transaction relief. The 
effective and applicability dates of the final rules, originally set 
for March 23, 2009, subsequently were delayed to allow the Department 
to solicit and review comments from interested persons on legal and 
policy issues raised under the final rules.\10\ Based on a 
consideration of the concerns raised by commenters as to whether the 
conditions of the class exemption would be adequate to mitigate 
advisers' conflicts, the Department decided to withdraw the final rule. 
Notice of the withdrawal of the final rule was published in the Federal 
Register on November 20, 2009 (74 FR 60156).
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    \9\ In connection with the development of the January 2009 final 
rules, the Department published two requests for information from 
the public (see 71 FR 70429 (Dec. 4, 2006) and 72 FR 70427; comments 
found at https://www.dol.gov/ebsa/regs/cmt-Investmentadvice.html and 
https://www.dol.gov/ebsa/regs/cmt-InvestmentadviceIRA.html); 
published proposed regulations and class exemption with solicitation 
of public comment (see 73 FR 49896 (Aug. 22, 2008) and 73 FR 49924; 
comments found at https://www.dol.gov/ebsa/regs/cmt-investment-advice.html and https://www.dol.gov/ebsa/regs/cmt-investmentadviceexemption.html); and held public hearings on October 
21, 2008 (see 73 FR 60657 (Oct. 21, 2008) and 73 FR 60720) and July 
31, 2007 (see 72 FR 34043 (June 20, 2007)).
    \10\ 74 FR 59092 (Nov. 17, 2009); 74 FR 23951 (May 22, 2009); 74 
FR 11847 (Mar. 20, 2009). Comments can be found at: https://www.dol.gov/ebsa/regs/cmt-investmentadvicefinalrule.html.
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    On March 2, 2010, the Department published in the Federal Register 
new proposed regulations that, upon adoption, implement the statutory 
prohibited transaction exemption under ERISA sections 408(b)(14) and 
408(g), and the parallel provisions in the Code (75 FR 9360). In 
response to the proposal, the Department received 74 comment 
letters.\11\
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    \11\ Comments can be found at: https://www.dol.gov/ebsa/regs/cmt-1210-AB35.html.
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    Set forth below is an overview of the final rule and an overview of 
the major comments received on the proposed rule.

B. Overview of Final Sec.  2550.408g-1 and Public Comments

1. General

    In general, Sec.  2550.408g-1 tracks the requirements under section 
408(g) of ERISA that must be satisfied in order for the investment 
advice-related transactions described in section 408(b)(14) to be 
exempt from the prohibitions of section 406. Paragraph (a) describes 
the general scope of the statutory exemption and regulation. Paragraph 
(b) sets forth the requirements that must be satisfied for an 
arrangement to qualify as an ``eligible investment advice arrangement'' 
and for the exemption to apply. Paragraph (c) defines certain terms 
used in the regulation. Paragraph (d) sets forth the record retention 
requirement applicable to an eligible investment advice arrangement. 
Paragraph (e) describes the implications of noncompliance on the 
prohibited transaction relief under the statutory exemption.
    The provisions in paragraph (a) of the final rule have not been 
changed from the proposal. Paragraph (a)(1) describes the general scope 
of the final rule, referencing the statutory exemption under sections 
408(b)(14) and 408(g)(1) of ERISA, and under sections 4975(d)(17) and 
4975(f)(8) of the Code, for certain transactions in connection with the 
provision of investment advice, as set forth in paragraph (b) of the 
final rule. It further provides that the requirements and conditions of 
the final rule apply solely for the relief described in the final rule, 
and that no inferences should be drawn with respect to the requirements 
applicable to the provision of investment advice not addressed by the 
rule.
    Several comment letters raised issues with respect to the general 
scope of the proposal. Although a number of commenters supported the 
Department's decision with respect to the withdrawal of the class 
exemption, others requested its re-proposal. The latter group argued 
that increasing the availability of investment advice to plan 
participants and beneficiaries requires broader prohibited transaction 
relief than provided under the proposed regulation. Other commenters 
argued that plan sponsors also would benefit from increased access to 
investment advice, and suggested extending exemptive relief to advice 
provided to plan sponsors, either through the final rule or by an 
administrative class exemption. Another commenter requested that the 
final rule provide relief for management of managed accounts. These 
comments are beyond the scope of the proposal, which was limited to 
implementation of the statutory exemption for the provision of 
investment advice to plan participants and beneficiaries, and have not 
been adopted by the Department.
    Two commenters observed that paragraph (a)(1) indicates that the 
requirements contained in the final rule should not be read as 
applicable to arrangements for which prohibited transaction relief is 
not necessary. They requested clarification that a plan sponsor's 
selection and monitoring responsibilities do not differ for advice 
provided pursuant to the regulation compared to arrangements for which 
prohibited transaction relief is not necessary. In response, we note 
that, as stated in FAB 2007-1, it is the Department's view that, except 
for section 408(g)(10)(A)(i) to (iii), the same fiduciary duties and 
responsibilities apply to the selection and monitoring of an investment 
adviser regardless of whether the arrangement for investment advice 
services is one to which the regulation applies. As further explained 
in that Bulletin, a plan sponsor or other fiduciary that prudently 
selects and monitors an investment advice provider will not be liable 
for the advice furnished by such provider to the plan's participants 
and beneficiaries, whether or not that advice is provided pursuant to 
the statutory exemption under section 408(b)(14).
    Paragraph (a)(2) provides that nothing contained in ERISA section 
408(g)(1), Code section 4975(f)(8), or the final rule imposes an 
obligation on a plan fiduciary or any other party to offer, provide or 
otherwise make available any investment advice to a participant or 
beneficiary. Paragraph (a)(3) provides that nothing contained in those 
same provisions of ERISA and the Code, or the final rule invalidates or 
otherwise affects prior regulations, exemptions, interpretive or other 
guidance issued by the Department pertaining to the provision of 
investment advice and the circumstances under which such advice may or 
may not constitute a prohibited transaction under section 406 of ERISA 
or section 4975 of the Code.
    Several commenters suggested that, rather than merely affirming the 
continued applicability of pre-PPA guidance in paragraph (a)(3),\12\ 
the Department should reconsider its past guidance in light of the 
safeguards contained in the statutory exemption and the proposed rule. 
Such an undertaking is beyond the scope of the

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current proposal, and the Department has not adopted this suggestion.
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    \12\ See also Field Assistance Bulletin 2007-1 (Feb. 2, 2007).
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    Other commenters requested a general clarification of how the final 
rule applies in the context of IRAs. In particular, a commenter asked 
if paragraph (a)(3) indicates that prior ERISA regulations are now 
applicable to IRAs. Code section 4975(c), similar to ERISA section 406, 
generally prohibits a plan fiduciary from rendering investment advice 
that results in the payment of additional advisory and other fees to 
the fiduciaries or their affiliates. A fiduciary who participates in a 
prohibited transaction is subject to excise taxes under Code section 
4975(a) and (b).\13\ The application of the Code section 4975 
prohibited transaction provisions to IRAs pre-dates the enactment of 
the PPA.\14\ The statutory exemption implemented by this rule merely 
provides limited conditional relief from the application of those Code 
provisions. Except for the relief afforded by the statutory exemption, 
the final rule does not change the manner or extent to which Code 
section 4975 applies to an IRA.\15\ Nor does the final rule make 
ERISA's fiduciary responsibility provisions applicable to an IRA that 
is not covered by ERISA.
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    \13\ See Code section 4975(a), (b), and (e)(2)(A).
    \14\ Code section 4975(e)(1)(B). Public Law 93-406 section 
2003(a), 88 Stat. 971.
    \15\ As indicated in footnote 6 above, pursuant to section 102 
of Reorganization Plan No. 4 of 1978, the Secretary of Labor has 
authority to interpret certain provisions of Code section 4975.
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    Commenters also asked questions relating to the prohibited 
transaction implications of making recommendations to plan participants 
to roll-over plan benefits into an IRA. The Department has taken the 
position that merely advising a plan participant to take an otherwise 
permissible plan distribution, even when that advice is combined with a 
recommendation as to how the distribution should be invested, does not 
constitute ``investment advice'' within the meaning of 29 CFR 2510-
3.21(c).\16\ The Department, however, has invited public comment on the 
issue as part of its review of the definition of ``fiduciary'' with 
regard to persons providing investment advice to plans or plan 
participants and beneficiaries under 29 CFR 2510.3-21(c).\17\ The 
Department has not completed its review of those comments and, 
accordingly, is not addressing the issue as part of this final rule.
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    \16\ AO 2005-23A (Dec. 7, 2005). This opinion further states 
that where someone who is already a plan fiduciary responds to 
participant questions concerning the advisability of taking a 
distribution or the investment of amounts withdrawn from the plan, 
that fiduciary is exercising discretionary authority respecting 
management of the plan and must act prudently and solely in the 
interest of the participant.
    \17\ 75 FR 65263 (Oct. 22, 2010).
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2. Statutory Exemption

a. General
    Paragraph (b) of the final rule describes the requirements that 
must be satisfied in order for the investment advice-related 
transactions described in section 408(b)(14) to be exempt from the 
prohibitions of section 406. These requirements generally track the 
requirements in section 408(g)(1) of ERISA.
    Paragraph (b)(1) of the final rule sets forth the general scope of 
the statutory exemption and regulation as providing relief from the 
prohibitions of section 406 of ERISA for transactions described in 
section 408(b)(14) of ERISA in connection with the provision of 
investment advice to a participant or a beneficiary if the investment 
advice is provided by a fiduciary adviser under an ``eligible 
investment advice arrangement.'' The transactions described in section 
408(b)(14) include the provision of investment advice to a participant 
or beneficiary with respect to a security or other property available 
as an investment under the plan; the acquisition, holding or sale of a 
security or other property available as an investment under the plan 
pursuant to the advice; and the direct or indirect receipt of fees or 
other compensation by the fiduciary adviser or an affiliate in 
connection with the provision of the advice or in connection with the 
acquisition, holding or sale of the security or other property. 
Paragraph (b)(1) also notes that the Code contains parallel provisions 
at section 4975(d)(17) and (f)(8).
    A commenter asked whether relief would be provided for extensions 
of credit intrinsic to investments made pursuant to investment advice 
rendered. It is the view of the Department that transactions in 
connection with the provision of investment advice described in section 
3(21)(A)(ii) of ERISA include, for purposes of the statutory exemption, 
otherwise permissible routine transactions necessary for the efficient 
execution and settlement of trades of securities, such as extensions of 
short term credit in connection with settlements.
    Commenters also requested clarification as to whether advice to a 
participant or beneficiary concerning the selection of an investment 
manager to manage some or all of the participant's or beneficiary's 
plan assets constitutes the provision of investment advice within the 
meaning of section 3(21)(A)(ii) of ERISA for purposes of the statutory 
exemption. As previously stated in the context of adopting the 2009 
final rule, the Department has long held the view that individualized 
recommendations of particular investment managers to plan fiduciaries 
constitutes the provision of investment advice within the meaning of 
section 3(21)(A)(ii) in the same manner as recommendations of 
particular securities or other property. The fiduciary nature of such 
advice does not change merely because the advice is being given to a 
plan participant or beneficiary.\18\ The Department has reaffirmed this 
position in connection with proposed amendments to regulations at 29 
CFR 2510.3-21(c).\19\
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    \18\ 74 FR 3822, 3824 (Jan. 21, 2009). See also AO 84-04A (Jan. 
4, 1984); AO 84-03A (Jan. 4, 1984); 29 CFR 2509.96-1(c).
    \19\ See footnote 17, above.
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    Paragraph (b)(2) provides that, for purposes of section 408(g)(1) 
of ERISA and section 4975(f)(8) of the Code, an ``eligible investment 
advice arrangement'' is an arrangement that meets either the 
requirements of paragraph (b)(3) [describing investment advice 
arrangements that use fee-leveling] or paragraph (b)(4) [describing 
investment advice arrangements that use computer modeling], or both.
b. Arrangements Using Fee-Leveling
    With respect to arrangements that use fee-leveling, paragraph 
(b)(3)(i)(A) requires that any investment advice must be based on 
generally accepted investment theories that take into account historic 
returns of different asset classes over defined periods of time, but 
also notes that generally accepted investment theories that take into 
account additional considerations are not precluded. Paragraph 
(b)(3)(i)(B) requires that investment advice must take into account 
investment management and other fees and expenses attendant to the 
recommended investments. These provisions have not been changed from 
the proposal.
    Paragraph (b)(3)(i)(C) of the final rule requires that investment 
advice provided under a fee-leveling arrangement must take into 
account, to the extent furnished, information relating to age, time 
horizons (e.g., life expectancy, retirement age), risk tolerance, 
current investments in designated investment options, other assets or 
sources of income, and investment preferences of the participant or 
beneficiary. Despite a request for re-consideration by commenters, 
paragraph (b)(3)(i)(C) requires that a fiduciary adviser must request 
such information. These

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commenters noted that ERISA section 408(g)(3) does not contain a 
mandatory request for information, and that the Department similarly 
should avoid such a mandate. The Department believes that this 
information is sufficiently important to the provision of useful 
investment advice that fiduciary advisers should be required to make a 
request for the information. Accordingly, this requirement is retained 
in both the fee-leveling and computer modeling provisions of the final 
rule. We note that, as also reflected in paragraph (b)(3)(i)(C) of the 
final rule, investment advice need not take into account information 
requested, but not furnished by a participant or beneficiary, and a 
fiduciary adviser is not precluded from requesting and taking into 
account additional information that a plan or participant or 
beneficiary may provide. Furthermore, the Department does not believe 
that this provision, or paragraph (b)(4)(i)(D) applicable to 
arrangements using computer models, would preclude a fiduciary adviser 
or computer model, when making an information request, from also 
providing a participant or beneficiary with an opportunity to direct 
the use of information previously provided.
    Paragraphs (b)(3)(i)(D) of the final rule sets forth the 
limitations on fees and compensation applicable to fee-leveling 
arrangements. As proposed, paragraph (b)(3)(i)(D) provided that no 
fiduciary adviser (including any employee, agent, or registered 
representative) that provides investment advice receives from any party 
(including an affiliate of the fiduciary adviser), directly or 
indirectly, any fee or other compensation (including commissions, 
salary, bonuses, awards, promotions, or other things of value) that is 
based in whole or in part on a participant's or beneficiary's selection 
of an investment option. Some commenters suggested that the fee and 
compensation limitation be expanded to include the affiliates of a 
fiduciary adviser. The Department has not adopted this suggestion. In 
FAB 2007-1, the Department concluded that the requirement in ERISA 
section 408(g)(2)(A)(i) that fees not vary depending on the basis of 
any investment option selected applies only to a fiduciary adviser, and 
does not extend to affiliates of the fiduciary adviser unless the 
affiliate also is a provider of investment advice. In reaching this 
conclusion, the Department explained that, consistent with its previous 
guidance, if the fees and compensation received by an affiliate of a 
fiduciary that provides investment advice do not vary or are offset 
against those received by the fiduciary for the provision of investment 
advice, no prohibited transaction will result solely by reason of 
providing investment advice, and prohibited transaction relief, such as 
provided under sections 408(b)(14) and 408(g), is not necessary.\20\
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    \20\ See AO 97-15A and AO 2005-10A.
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    Several commenters suggested that the Department revise the 
language in paragraph (b)(3)(i)(D) that refers to fees or compensation 
that is ``based in whole or in part'' on a participant's investment 
selection to conform to the statutory provision, and make clear that 
the regulation only proscribes fees or compensation that vary based on 
investment selections. As an example, a commenter explained that if 
commissions paid with respect to each plan investment option are the 
same, the commission could nonetheless be considered ``based on'' an 
investment selection because it is paid only if an investment is made, 
and therefore would appear to violate the proposal. Such a result, it 
is argued, is inconsistent with the section 408(g)(2)(A)(i), which only 
requires that ``any fees (including any commission or other 
compensation) received by the fiduciary adviser * * * do not vary 
depending on the basis of any investment option selected.'' (Emphasis 
added) Another commenter cautioned that the proposal could be 
misinterpreted as proscribing only those payments that a payor intends 
to act as an incentive, whereas the statutory provision appears to 
address receipt of any varying payment that has the effect of creating 
an incentive, without regard to the payor's intent.\21\ This commenter 
also recommended that the proposal should be revised to conform to the 
statutory language.
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    \21\ The commenter focused on the Department's preamble 
explanation that, even though an affiliate of a fiduciary adviser 
would be permitted to receive fees that vary depending on investment 
options selected, any provision of financial or economic incentives 
by an affiliate (or any other party) to a fiduciary adviser or 
person employed by such fiduciary adviser to favor certain 
investments would be impermissible under the proposal. 75 FR 9361
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    The Department agrees with the observations of the commenters and, 
accordingly, has revised the provision in response to these comments. 
Paragraph (b)(3)(i)(D) of the final rule requires that no fiduciary 
adviser (including any employee, agent, or registered representative) 
that provides investment advice receives from any party (including an 
affiliate of the fiduciary adviser), directly or indirectly, any fee or 
other compensation (including commissions, salary, bonuses, awards, 
promotions, or other things of value) that varies depending on the 
basis of a participant's or beneficiary's selection of a particular 
investment option. Consistent with the statute, this provision 
proscribes the receipt of fees or compensation that vary based on 
investment options selected, and therefore could have the effect of 
creating an incentive for a fiduciary adviser, or any individual 
employed by the adviser, to favor certain investments.
    A commenter expressed the view that by encompassing bonuses, 
awards, promotions, or other things of value, the fee-leveling 
requirement may be unnecessarily broad. Some commenters asked whether 
particular compensation arrangements or structures described in their 
comment letters would meet the fee-leveling requirement. Others 
similarly sought confirmation that bonuses, where it can be established 
that plan and IRA components are excluded from, or constitute a 
negligible portion of, the calculation, would not violate the fee-
leveling requirement. The Department intends the fee-leveling 
requirement to be broadly applied in order to ensure the objectivity of 
the investment advice recommendations to plan participants and 
beneficiaries is not compromised by the advice provider's own financial 
interest in the outcome. For purposes of applying the provision, the 
Department would consider things of value to include trips, gifts and 
other things that, while having a value, are not given in the form of 
cash. Accordingly, almost every form of remuneration that takes into 
account the investments selected by participants and beneficiaries 
would likely violate the fee-leveling requirement of the final rule. On 
the other hand, a compensation or bonus arrangement that is based on 
the overall profitability of an organization may be permissible if the 
individual account plan and IRA investment advice and investment option 
components are excluded from, or constituted a negligible portion of, 
the calculation of the organization's profitability. The Department 
believes, however, that whether any particular salary, bonus, awards, 
promotions or commissions program meets or fails the fee-leveling 
requirement ultimately depends on the details of the program. In this 
regard, the Department notes that, under paragraph (b)(6), the details 
of such programs will be the subject of both a review and a report by 
an independent auditor as a condition for relief under the statutory 
exemption.
    In addition to the foregoing, under paragraph (b)(3)(ii), fiduciary 
advisers utilizing investment advice

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arrangements that employ fee-leveling must comply with the requirements 
of paragraphs (b)(5) [authorization by plan fiduciary], (b)(6) 
[audits], (b)(7) [disclosure to participants], (b)(8) [disclosure to 
authorizing fiduciary], (b)(9) [miscellaneous], and (d) [maintenance of 
records] of the final rule, each of which is discussed in more detail 
below.
c. Arrangements Using Computer Models
    Paragraph (b)(4) addresses the requirements applicable to 
investment advice arrangements that rely on use of computer models 
under the statutory exemption. To qualify as an eligible investment 
advice arrangement, the only investment advice provided under the 
arrangement must be advice generated by a computer model described in 
paragraph (b)(4)(i) [computer model design and operation] and (ii) 
[computer model certification], and the arrangement must meet the 
requirements of paragraphs (b)(5) through (9) and paragraph (d), each 
of which is discussed in more detail below.

1. Computer Model Design and Operation

    In general, the computer model design and operation provisions in 
the proposal were based on section 408(g)(3)(B)(i)-(v) of ERISA. They 
also reflected comments received during development of the January 2009 
final rule. However, the proposal also included a new provision, at 
paragraph (b)(4)(i)(E)(3), requiring that a computer model must be 
designed and operated to avoid investment recommendations that 
inappropriately distinguish among investment options within a single 
asset class on the basis of a factor that cannot confidently be 
expected to persist in the future. The Department added this provision 
to enhance the rule's protections against the potential that the 
adviser's conflicts might taint advice given under the exemption. To 
further explore the merits of enhancing the rule's protections by 
providing more specific computer model standards, the Department 
solicited comment on a number of questions involving computer models. 
These questions related to matters such as the identification and 
application of, and practices consistent with, generally accepted 
investment theories; use of historical data (such as past performance) 
of asset classes and plan investments; and criteria appropriate for 
consideration in developing asset allocation recommendations consisting 
of plan investments.
    As in the proposal, paragraph (b)(4)(i)(A) of the final rule 
relates to the application of generally accepted investment theories 
that take into account the historic risks and returns of different 
asset classes over defined periods of time. In response to the 
Department's solicitation, commenters indicated that generally accepted 
investment theories is a term defined by wide usage and acceptance by 
investment experts and academics, and is subject to change over time. 
Most did not believe, however, that the Department should specifically 
define or identify generally accepted investment theories, or prescribe 
particular practices or computer model parameters. These commenters 
explained that economic and investment theories and practices 
continuously evolve over time in response to changes and developments 
in academic and expert thinking, technology, and financial markets. 
Commenters cautioned that defining generally accepted theories and 
practices through the final rule would reflect a determination made at 
a particular point in time, and that such a determination might limit 
the ability of advisers to select and apply investment theories and 
methodologies they believe to be appropriate, and cause them to apply 
theories and methodologies that they otherwise might determine to be 
outdated. They also suggested that establishing a specific standard 
might inhibit innovation in participant-oriented investment advice. 
Commenters further noted that the proposal's computer model provisions, 
without modification, would be sufficient to protect against use of 
specious or highly unorthodox methods, or inappropriate consideration 
of factors such as recent performance of plan investment options. These 
commenters therefore suggested that specifying theories and practices 
is not necessary to protect participants, and furthermore may impede 
the development of advice that is in their best interests.
    Other commenters suggested that more specific standards might be 
helpful. One commenter stated that lack of guidance on what constitutes 
a generally accepted investment theory may present difficulties in 
performing the rule's required computer model certifications. The 
commenter recommended that the Department revise the rule to include a 
process for determining whether a theory is generally accepted, which 
could include submission to a panel of experts for determination and 
publication of an acceptable list of theories. Another commenter 
suggested that the final rule contain non-exclusive ``safe harbor'' 
computer model parameters. Another commenter requested clarification 
that a computer model must apply generally accepted investment theories 
that take into account the other considerations described in the 
regulation's computer model provisions (e.g., information about a 
participants age and time horizon).
    Virtually all commenters who addressed this issue indicated that 
use of historical performance data is required by generally accepted 
investment theories, but only in ways that recognize statistical 
uncertainty. Most noted that defining ``historical'' differently can 
have a tremendous impact on the resulting data and investment 
recommendations, and generally agreed that long-term performance 
information is preferable to short-term performance information. Some 
opined that historical performance data must reflect at least one 
market or economic cycle, but provided different timeframes (e.g., at 
least 5, 10, or 20 years) that they believe would meet this standard. 
Some also suggested that use of historical performance data should be 
limited to estimating future performance for an entire asset class, 
rather than as a predictor for individual investments within an asset 
class.
    After careful consideration of all the comments on the issue, the 
Department does not believe it has a sufficient basis for determining 
appropriate changes to the generally accepted investment theory 
standard. While several commenters described theories and practices 
they believe to be generally accepted, there did not appear to be any 
consensus among them, with the exception of modern portfolio 
theory,\22\ which the Department believes is already reflected in the 
rule's reference to investment theories that take into account the 
historic returns of different asset classes over defined periods of 
time. Moreover, the Department is concerned that attempting to provide 
further clarification or additional specificity in this area may have 
potentially significant unintended consequences--such as limiting 
advisers' ability to select, apply or make further innovations in 
participant-oriented investment advice--that could potentially lower 
the quality of

[[Page 66141]]

investment advice received by participants and reduce the economic 
benefit of the statutory exemption. The Department also is persuaded 
that, without additional specificity, the final rule's computer model 
requirements are sufficient to safeguard participants from 
inappropriate application of investment theories. As the party seeking 
prohibited transaction relief under the exemption, the fiduciary 
adviser has the burden of demonstrating satisfaction of all applicable 
requirements of the exemption. A fiduciary adviser relying on use of 
computer models therefore must be able to demonstrate that the computer 
model is designed and operated to apply generally-accepted investment 
theories. Furthermore, as with the other computer model requirements in 
paragraph (b)(4)(i), application of generally-accepted investment 
theories is subject to certification by an eligible investment expert 
under paragraph (b)(4)(ii). This provides significant additional 
procedural and substantive safeguards, as the expert must be 
independent of the fiduciary adviser as described in paragraph 
(b)(4)(ii), and must following its evaluation of a computer model 
prepare a written certification report. Paragraph (d) of the final 
rule, in turn, requires the fiduciary adviser to retain for a period of 
no less than 6 years any records necessary for determining whether the 
applicable requirements of the regulation have been met.
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    \22\ This is consistent with a survey of literature on generally 
accepted investment theories prepared for the Department. See 
Deloitte Financial Advisory Services LLP, Generally Accepted 
Investment Theories (July 11, 2007) (unpublished, on file with the 
Department of Labor).
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    Accordingly, paragraph (b)(4)(i)(A) of the final rule has not been 
changed from the proposal. This provision requires that a computer 
model must be designed and operated to apply generally accepted 
investment theories that take into account the historic risks and 
returns of different asset classes over defined periods of time, but 
also makes clear that the provision does not preclude a computer model 
from applying generally accepted investment theories that take into 
account additional considerations.
    Paragraph (b)(4)(i)(B) of the final rule requires that a computer 
model must take into account investment management and other fees and 
expenses attendant to the recommended investments. No substantive 
comments were received on this provision, and it is being adopted 
unchanged from the proposal.
    Paragraph (b)(4)(i)(C) of the final rule, as described below, 
reflects the requirement that was contained in paragraph 
(b)(4)(i)(E)(3) of the proposal.
    Paragraph (b)(4)(i)(D) of the final rule, as with paragraph 
(b)(4)(i)(C) of the proposal, requires a computer model to request from 
a participant or beneficiary and, to the extent furnished, utilize 
information relating to age, time horizons, risk tolerance, current 
investments in designated investment options, other assets or sources 
of income, and investment preferences. The provision further makes 
clear, however, that a computer model is not precluded from requesting, 
and utilizing, other information from a participant or beneficiary. As 
discussed above in the description of paragraph (b)(3)(i)(C) 
(applicable to arrangements that use fee-leveling), the Department has 
not adopted commenter requests to remove the regulation's mandatory 
request for information from participants and beneficiaries. A few 
commenters also suggested that the Department revise the regulation to 
provide additional factors that must be considered in computer models, 
such as participant contribution rates and liquidity needs. Although 
paragraph (b)(4)(i)(D) has not been modified to reflect these factors, 
the Department notes that there is nothing in the final rule that 
expressly precludes a computer model from requesting and taking into 
account additional factors to the extent the model otherwise complies 
with the requirements of the regulation.
    Paragraph (b)(4)(i)(D) of the proposal requires that a computer 
model must be designed and operated to utilize appropriate objective 
criteria to provide asset allocation portfolios comprised of investment 
options available under the plan. Paragraph (b)(4)(i)(E) of the 
proposal further requires that a computer model be designed and 
operated to avoid investment recommendations that inappropriately favor 
investment options offered by the fiduciary adviser or certain other 
persons, over other investment options, if any, available under the 
plan (paragraph (b)(4)(i)(E)(1)); inappropriately favor investment 
options that may generate greater income for the fiduciary adviser or 
certain other persons (paragraph (b)(4)(i)(E)(2)); or inappropriately 
distinguish among investment options within a single asset class on the 
basis of a factor that cannot confidently be expected to persist in the 
future (paragraph (b)(4)(i)(E)(3)). With respect to paragraph 
(b)(4)(i)(E)(3), the Department explained that while some differences 
between investment options within a single asset class, such as 
differences in fees and expenses or management style, are likely to 
persist in the future and therefore to constitute appropriate criteria 
for asset allocation, other differences, such as differences in 
historical performance, are less likely to persist and therefore less 
likely to constitute appropriate criteria for asset allocation; asset 
classes, in contrast, can more often be distinguished from one another 
on the basis of differences in their historical risk and return 
characteristics.
    The Department did not receive any substantive comments with 
respect to paragraphs (b)(4)(i)(D), (b)(4)(i)(E)(1) and (2), and 
therefore is adopting these provisions as proposed, now at paragraphs 
(b)(4)(i)(E), (b)(4)(i)(F)(1) and (2) of the final rule. A number of 
commenters requested that the Department consider removing paragraph 
(b)(4)(i)(E)(3) of the proposal. Some opined that the test contained in 
that provision--which applies on an asset-class by asset-class basis--
lacks sufficient clarity because it fails to define the essential term 
``asset class.'' A commenter further noted that a rules-based 
definition of asset class, and the necessary confidence of future 
persistence, likely would be too vague or too restrictive. Some 
commenters also requested removal of this provision unless the 
Department clarifies that it would be acceptable for a computer model 
to take into account historical performance data. According to these 
commenters, the proposal's discussion of paragraph (b)(4)(i)(E)(3) and 
related computer model questions has been construed as strictly 
prohibiting, or strongly cautioning against, any consideration of 
historical performance data, even if considered in conjunction with 
other information. These commenters opined that a complete disregard of 
historical performance data would be inconsistent with generally 
accepted investment theories, as discussed above. Furthermore, some 
cautioned that, by limiting consideration to only those factors that 
can confidently be expected to persist in the future, a computer model 
might be limited to distinguishing between investment options solely on 
the basis of fees and expenses. A commenter noted that, other than 
fees, it could not identify any other factor with the necessary 
likelihood of persistence it believed would be required under the 
proposal. Although commenters generally agreed that fees are an 
important consideration, most recognized they should not be the only 
factor taken into account.
    Several commenters indicated that, while the rule is limited to 
implementation of the statutory exemption for investment advice, any 
views the Department expresses with respect to investment theories and 
practices might be read as applying more generally to any fiduciary 
decision

[[Page 66142]]

relating to investments. Thus, a number of commenters expressed concern 
that the proposal, with its focus on historical performance data, 
superior past performance and fees, appeared to suggest that it would 
be impermissible under any circumstances for a plan fiduciary to pursue 
an active management style, or that a plan fiduciary would bear a very 
high burden of justification. Commenters also stated that the 
Department's proposal appeared to demonstrate a clear bias in favor of 
passive investment styles over active styles, which they believe to be 
premature because it is the subject of ongoing debate among investment 
experts.
    Other commenters, however, questioned the utility of historical 
performance data beyond estimating future performance of an entire 
asset class. They further noted that, because the regulation permits a 
fiduciary adviser to provide investment recommendations to plan 
participants when the adviser has an interest in the investment options 
being recommended, there is the potential that the computer model might 
be designed to favor certain options by giving undue weight to 
historical performance data. They therefore stressed the importance of 
scrutinizing the use of historical performance data and supported the 
inclusion of paragraph (b)(4)(i)(E)(3) of the proposal.
    Paragraph (b)(4)(i)(E)(3) of the proposal incorporated the 
generally-recognized premise that an investment option's historical 
performance on its own is not an adequate predictor of such investment 
option's future performance. The provision was not intended to prohibit 
a computer model from any consideration of an investment option's 
historical performance, as some commenters interpreted. Rather, as some 
commenters recognized, the provision is intended to ensure that in 
evaluating investment options for asset allocation, it would be 
appropriate and consistent with generally accepted investment theories 
for a computer model to take into account multiple factors, including 
historical performance, attaching weights to those factors based on 
surrounding facts and circumstances. As with the consideration of fees 
and expenses attendant to investment options, commenters generally 
recognized the importance of ensuring that historical performance of 
options is not given inappropriate weight. The Department is not 
persuaded by the comments received that the provision should be 
eliminated, however, to avoid further misinterpretation of the 
provision, the requirement has been clarified and moved to paragraph 
(b)(4)(i)(C) of the final rule. This provision requires that a computer 
model must be designed and operated to appropriately weight the factors 
used in estimating future returns of investment options.
    Paragraph (b)(4)(i)(G)(1) of the final rule, like paragraph 
(b)(4)(i)(F)(1) of the proposal, requires a computer model to take into 
account all ``designated investment options'' available under the plan 
without giving inappropriate weight to any investment option. The term 
``designated investment option'' is defined in paragraph (c)(1) of the 
final rule to mean any investment option designated by the plan into 
which participants and beneficiaries may direct the investment of 
assets held in, or contributed to, their individual accounts. The term 
``designated investment option'' does not include ``brokerage 
windows,'' ``self-directed brokerage accounts,'' or similar plan 
arrangements that enable participants and beneficiaries to select 
investments beyond those designated by the plan.
    As with paragraph (b)(4)(i)(F)(2) of the proposal, paragraph 
(b)(4)(i)(G)(2) of the final rule provides that a computer model will 
not be treated as failing to meet paragraph (b)(4)(i)(G)(1) merely 
because it does not make recommendations relating to the acquisition, 
holding or sale of certain types of investment options. Under the 
proposal, this exception applied to: qualifying employer securities; an 
investment that allocates the invested assets of a participant or 
beneficiary to achieve varying degrees of long-term appreciation and 
capital preservation through equity and fixed income exposures, based 
on a defined time horizon or level of risk of the participant or 
beneficiary; and an annuity option with respect to which a participant 
or beneficiary may allocate assets toward the purchase of a stream of 
retirement income payments guaranteed by an insurance company.
    Several commenters suggested removal of one or more of these 
exceptions. Commenters noted that requiring computer models to be 
capable of providing recommendations with respect to employer 
securities could help participants avoid risks associated with 
overconcentrated investments in equity securities of a single company. 
As to asset allocation funds (e.g., lifecycle, or target date, funds), 
commenters noted that, if a computer model does not include 
recommendations on these popular investments, then interested 
participants would need to conduct their own research beyond the 
general explanation required under the proposal.\23\ With respect to 
in-plan annuity options, several commenters noted that these newly-
developing options can help participants address longevity risk and 
improve retirement security, and that permitting their exclusion from 
computer model advice could result in low utilization by participants. 
A commenter also expressed confidence that, in the time since the 
Department's 2009 final rule, computer modeling technology has become 
sufficiently sophisticated to take in-plan annuity options into 
account.
---------------------------------------------------------------------------

    \23\ Under paragraph (b)(4)(i)(F)(2)(ii) of the proposal, the 
limitation for these types of funds was subject to the condition 
that the participant, contemporaneous with the provision of the 
computer-generated advice, would be furnished with a general 
description of the fund and how they operate.
---------------------------------------------------------------------------

    The Department has decided to remove qualifying employer securities 
and asset allocations funds from the list of excepted options in 
paragraph (b)(4)(i)(G)(2). The Department believes that it is feasible 
to develop a computer model capable of addressing investments in 
qualifying employer securities, and that plan participants may 
significantly benefit from this advice. The Department also believes 
that participants who seek investment advice as they manage their plan 
investments would benefit from advice that takes into account asset 
allocation funds, if available under the plan. Based on recent 
experience in examining target date funds and similar investments, the 
Department believes it is feasible to design computer models with this 
capability.\24\
---------------------------------------------------------------------------

    \24\ In 2009, the Department and the U.S. Securities and 
Exchange Commission (SEC) held a joint public hearing to examine 
issues related to the design and operation of target date funds and 
similar investments. See https://www.dol.gov/ebsa/regs/cmt-targetdatefundshearing.html. In 2010, the agencies jointly provided 
an Investor Bulletin to help investors and plan participants better 
understand the operations and risks of target date fund investments. 
See https://www.dol.gov/ebsa/pdf/TDFinvestorbulletin.pdf. The 
Department is in the process of developing regulations to address 
disclosures related to target date funds, 75 FR 73987 (Nov. 30, 
2010), and also is currently developing guidance to assist plan 
sponsors in the selection and monitoring of target date funds for 
their plans.
---------------------------------------------------------------------------

    The Department, however, is less certain that computer models are 
able to give adequate consideration to in-plan annuity products, which 
permit a participant to allocate a portion of the assets in his or her 
plan account towards the purchase of an annuitized retirement benefit. 
In the absence of a better understanding of the computer modeling 
issues raised by in-plan annuities, the Department is hesitant to 
mandate their inclusion in a computer

[[Page 66143]]

model. The Department therefore is retaining the exception for in-plan 
annuity options. Thus, paragraph (b)(4)(i)(G)(2)(i) of the final rule 
provides that a computer model will not fail to satisfy paragraph 
(b)(4)(i)(G)(1) merely because it does not make recommendations 
relating to the acquisition, holding, or sale of an annuity option with 
respect to which a participant or beneficiary may allocate assets 
toward the purchase of a stream of retirement income payments 
guaranteed by an insurance company, provided that, contemporaneous with 
the provision of investment advice generated by the computer model, the 
participant or beneficiary is also furnished a general description of 
such options and how they operate. The Department notes, however, that 
even though paragraph (b)(4)(i)(G)(2)(i) permits a computer model to 
not make recommendations to allocate amounts to an in-plan annuity, 
amounts that a participant or beneficiary have already allocated to 
such an annuity must be taken into account by the computer model in 
developing the recommendation with respect to the investment of the 
participant's remaining available assets. The Department further notes 
that, while not mandated, there is nothing in the regulation that 
precludes a computer model from being designed to make recommendations 
to allocate amounts to an in-plan annuity, subject to the other 
conditions of the regulation being satisfied.
    Also, the Department has added a new provision to reflect the 
interaction between paragraph (b)(4)(i)(G)(1) and paragraph 
(b)(4)(i)(C), which requires a computer model to request and, to the 
extent furnished, take into account a participant's investment 
preferences. This new provision, paragraph (b)(4)(i)(G)(2)(ii) of the 
final rule, provides that a computer model will not fail to satisfy 
paragraph (b)(4)(i)(G)(1) merely because it does not provide a 
recommendation with respect to an investment option that a participant 
or beneficiary requests to be excluded from consideration in such 
recommendations.
    A commenter requested clarification as to whether an IRA with an 
unlimited universe of investment options would be treated similar to a 
brokerage window or self-directed brokerage account for purposes of 
this provision. Another commenter indicated that some IRAs permit 
beneficiaries to make investments in a limited universe of options, 
while also permitting them to hold other investments that are not 
offered by the IRA, and asked if paragraph (b)(4)(i)(G)(1) would be 
violated if a computer model provides ``buy'' ``hold'' and ``sell'' 
recommendations with respect to the limited universe of options, while 
accommodating ``hold'' and ``sell'' recommendations for the investments 
not available through the IRA. While the Department believes that 
computer models should, with few exceptions, be required to model all 
investment options available under a plan or through an IRA, the 
Department does not believe that it is reasonable to expect that all 
computer models be capable of modeling the universe of investment 
options, rather than just those investment alternatives designated as 
available investments through the IRA. Accordingly, it is the view of 
the Department that a computer model would not fail to meet the 
requirements of paragraph (b)(4)(i)(G)(1) merely because it limits buy 
recommendations only to those investment options that can be bought 
through the plan or IRA, even if the model is capable of modeling hold 
and sell recommendations with respect to investments not available 
through the plan or IRA, provided, of course, that the plan participant 
or beneficiary or IRA beneficiary is fully informed of the model's 
limitations in advance of the recommendations, thereby enabling the 
recipient of advice to assess the usefulness of the recommendations.

2. Computer Model Certification

    Paragraph (b)(4)(ii) of the final rule, like the proposal, requires 
that, prior to utilization of the computer model, the fiduciary adviser 
must obtain a written certification that the computer model meets the 
requirements of paragraph (b)(4)(i), discussed above. If the model is 
subsequently modified in a manner that may affect its ability to meet 
the requirements of paragraph (b)(4)(i), the fiduciary adviser, prior 
to utilization of the modified model, must obtain a new certification. 
The required certification must be made by an ``eligible investment 
expert,'' within the meaning of paragraph (b)(4)(iii), and must be made 
in accordance with the requirements of paragraph (b)(4)(iv).
    Paragraph (b)(4)(iii) of the final rule, like the proposal, defines 
an ``eligible investment expert'' to mean a person that, through 
employees or otherwise, has the appropriate technical training or 
experience and proficiency to analyze, determine and certify, in a 
manner consistent with paragraph (b)(4)(iv), whether a computer model 
meets the requirements of paragraph (b)(4)(i). Consistent with section 
408(g)(3)(C)(iii) of ERISA, paragraph (b)(4)(iii) further limits this 
definition by excluding certain parties that would not have sufficient 
independence from an arrangement to certify a computer model for 
compliance with the regulation. The proposal provided that the term 
``eligible investment expert'' does not include any person that has any 
material affiliation or material contractual relationship with the 
fiduciary adviser, with a person with a material affiliation or 
material contractual relationship with the fiduciary adviser, or with 
any employee, agent, or registered representative of the foregoing.
    Several commenters asked for additional guidance on the credentials 
necessary to serve as an ``eligible investment expert.'' The Department 
previously attempted to define with greater specificity the 
qualifications of the eligible investment expert. It received public 
comments on this issue in response to a specific request for 
information published in 2006 and to similar proposed rules published 
in 2008.\25\ At that time, it concluded that it could not define a 
specific set of academic or other credentials for an eligible 
investment expert. The Department continues to believe it would be very 
difficult to do so, and the comments received with respect to this most 
recent proposal did not provide significant additional information for 
consideration. As a result, no changes have been made to this aspect of 
the final rule. The Department notes, however, that as provided in 
paragraph (b)(4)(v) of the final rule, the fiduciary adviser's 
selection of the eligible investment expert is a fiduciary act governed 
by section 404(a)(1) of ERISA. Therefore, a fiduciary adviser must act 
prudent