New Andrews Bill - CIAPA - Could be a Gamechanger.

The DOL is currently reviewing questions of law and policy implicated by the Final Rule Re Investment Advice to Participants of Self-directed Individual Account Plans that were raised during the most recent comment period. During the delay of the effective date, Congressmen Miller and Andrews have continued to work cooperatively on legislation addressing fee transparency and increased disclosure obligations of conflicts of interest for retirement plan service providers. After finding that “401(k) plan holders have access to a self-interested or conflicted advisor,” and that “conflicts of interest can have an adverse affect on defined benefit and defined contribution plans,” on April 21, 2009, Congressman Andrews introduced the Conflicted Investment Advice Prohibition Act of 2009 (“CIAPA”) in the U.S. House of Representatives.

CIAPA seeks to eliminate the fiduciary adviser exemption in its entirety and replace it with a new exemption for “independent investment advisers.” Specifically, CIAPA would strike ERISA section 408(g) (the underpinning of the Final Rule) and amend section (b)(14)(B) to create a prohibited transaction exemption where “the investment advice is provided by an independent adviser (as defined in section 3(43)).” Given that section 408(g) provides the framework for the Final Rule, to the extent CIAPA is enacted in its current form, the fiduciary adviser – EIAA exemption would cease to exist.

While many of the requirements set forth in section 408(g) (e.g., computer model certification, annual audit, disclosures, etc.) would be retained under CIAPA (at proposed ERISA section 3(43)), the level fee provisions would be substantially modified. The Final Rule required only the fiduciary adviser and the individual providing the investment advice to receive level compensation; CIAPA would require that all compensation received by any affiliate of the investment adviser to also be level. Paragraph (d), entitled “Regulatory Authority,” may provide a reprieve for PPA fiduciary advisers, as it authorizes the Secretary of Labor to issue regulations providing that:

“an investment adviser can still be considered as meeting the requirements of section (3)(43)(B) of [ERISA] despite the receipt of a de minimus amount of compensation that fails to meet the requirements of section (3)(43)(B)(iii) of [ERISA] due to the existence of previously existing contracts.”

It is, therefore, conceivable that the DOL may determine that existing EIAAs are not ineligible to the extent compensation received by an affiliate is determined to be de minimus. Stay tuned…