The Department of Labor's Employee Benefits Security Administration is working aggressively on its statutory requirements under the Pension Protection Act of 2006 and on its regulatory agenda, an EBSA official said Jan. 26.

Louis J. Campagna, chief of the Division of Fiduciary Interpretations, Office of Regulations and Interpretations for the agency, said EBSA regulatory activities related to the PPA are being driven by the statutory deadline requirements of 180 days and 360 days, focusing on such matters as automatic enrollment and default investments, cross trades, and investment advice. Other regulatory agenda business is going forward on issues related to fees and fee disclosure, he told a Washington, D.C., meeting of the ALI-ABA investment adviser regulation course.

“We are trying very hard to meet the deadlines” required by the PPA, Campagna said.

PPA Related Regulations.

The agency received more than 100 comments on its automatic enrollment and default investment proposed rule which the agency is reviewing as it tries to meet the 180 day statutory deadline of Feb. 17, Campagna said. The proposed rule was published on Sept. 27 (186 PBD, 9/27/06; 33 BPR 2325, 10/3/06; 71 Fed. Reg. 56,806, 9/27/06).

Comments recommending that other funds, such as stable value funds and money market funds be considered as default investments under the rule are being looked at by the agency, Campagna said, trying to give a sense of what EBSA is considering as it finalizes the rule. Commenters have made some “very good arguments” to include these other funds, he said.

The agency is also looking at who should be a qualified default investment adviser and issues associated with notice requirements, Campagna said.

“Stay tuned to see what happens as a result of the comments” received on this rule, Campagna said.

Also in the 180 statutory requirement deadline is a regulation on cross trades, Campagna said. The agency is required to address the actual content of the policies and procedures that investment managers will use to assure that cross trades are conducted, allocated, and priced in a fair and equitable manner, he said.

The PPA provides a statutory exemption for cross trades in securities between pension plans governed by the Employee Retirement Income Security Act. The transaction is limited to plans that have assets of at least $100 million except that if the assets of a plan are invested in a master trust containing the assets of plans maintained by employers in the same controlled group, the master trust has assets of at least $100 million.

Another area EBSA intends to provide some guidance on includes provisions to exempt plan sponsors providing investment advice. A prohibited transaction exemption that was enacted under the PPA gives investment advisers greater flexibility in the ways they can provide investment advice to participants of tax code Section 401(k) defined contribution plans and IRAs

Campagna also noted that the agency has asked for public comment on how to certify investment advice in the form of computer models for defined contribution plans and individual retirement accounts and on commonly used fee disclosures.

One of the ways in which investment advice may be given is through the use of an unbiased computer model that must be certified by an independent expert, Campagna said. The independent expert must be certified under rules to be prescribed by the department, he said.

Since EBSA also is required to develop a model notice on fee disclosures related to such investment advice, information is also being solicited on the types of fee disclosure materials currently used and their usefulness to plan participants, Campagna said.

Comments on the computer modelling are due by Jan. 30, Campagna said.

As it works on these investment advice projects, Campagna said that the agency hopes to address issues related to the effect these projects will have on past investment guidance.

Fees and Fee Disclosure.

It is a fiduciary duty “to get to the bottom” of what is being paid in fees, especially indirect fees to service providers, Campagna said.

In July of 2006, the agency published proposed changes to Form 5500 that included significant improvements in transparency of plan-related fees and expenses (139 PBD, 7/21/2006; 33 BPR 1717, 7/25/06). The proposed changes are intended to assist plan officials in assessing the reasonableness of compensation paid for services and potential conflicts of interest that might affect those services.

The agency is working on amending the statutory exemption under ERISA Section 408(b)(2) regarding provisions of service and what is “reasonable compensation,” Campagna said.

The agency also intends to add some additional disclosure requirements regarding conflicts of interest, Campagna said. He noted that this fee issue also ties in to fee reporting requirements for the Form 5500 Annual Report regarding fees paid to service providers, he said.

Service providers will have to assist plan administrators in providing the required fee information on the Form 5500, Campagna said.

By Michael W. Wyand