Retirement Plan Blog

“It” refers to the Pension Protection Act of 2006 which provides fiduciary relief in several areas. This relief includes:

• Investment Advice. Many plan sponsors were previously reluctant to add an investment advice component to their 401(k) plans. The Act specifically permits qualified fiduciary advisers to deliver personally-tailored investment advice to participants in 401(k) plans and other tax-advantaged savings vehicles. This is effective after December 31, 2006.

• Default Investments. If a participant failed to make an investment election, most 401(k) plans used a money market or stable value fund as a default fund because of fiduciary liability concerns. The Act provides for a safe harbor subject to Department of Labor (DoL) regulation. The DoL’s recently issued proposed regulation permits the default fund to be either an asset allocation fund, target-maturity fund, or professionally managed fund.

• Blackout Periods and Mapping. The Act provides fiduciary relief during a “blackout period” including fund “mapping” if DoL prescribed conditions are met. A blackout period occurs when fund investments are changed, and a participant has limited or no ability to make fund changes. Mapping is that process in which a participant’s funds are transferred to similar mutual funds as determined by asset category, class and investment style. This is effective for plan years beginning after December 31, 2007.

Good news for our small and mid-sized retirement plan clients, the Trustees of which are usually the owners and/or senior management of closely-held companies.