"DOL's Advice on Advice and Investment Professionals: Take Two"

On February 26, 2010, the Department of Labor ("DOL") issued a new set of proposed regulations (the "New Proposed Regulations"), which banks, broker-dealers, mutual fund complexes and other financial institutions that deal directly or indirectly with participant-directed retirement plans, such as 401(k) plans and individual retirement accounts (collectively, "Participant Directed Plans") should find of interest.

The New Proposed Regulations are designed to enable investment professionals at financial institutions dealing with Participant Directed Plans to provide meaningful investment advice to those plans without implicating the broad conflict of interest rules under the Employee Retirement Income Security Act of 1974, as amended, and Section 4975 of the Internal Revenue Code of 1986, as amended.

The DOL previously issued proposed regulations in the summer of 2008 under the Bush administration.  These were finalized and scheduled to become effective in March of 2009, when, in the opening days of the Obama Administration, Chief of Staff Rahm Emanuel issued an order that resulted in a delay of the effective date.  Ultimately, the final regulations were withdrawn altogether. 

The New Proposed Regulations, which are the subject of this Stroock Special Bulletin, suggest a renewed attempt by the DOL to reconcile a demand for sophisticated investment advice with the need to protect plans from the potential for self-dealing, inadvertent or otherwise, by the increasingly inter-connected institutions providing the advice.