HOME > Practices > PPA Pension Protection Act of 2006

The Pension Protection Act (PPA) is going to have a profound impact on the investment industry as a whole, not just the retirement segment.

If Congress has determined that a 401(k) participant with a $500 account balance is deserving of a fiduciary standard of care, what does that say about the standard of care the retail investor should receive with a $500,000 account balance?

The PPA defines a floor for our industry: the minimum standard of care an investment advisor should provide to any client.

ERISA requires qualified pension plans to be managed to the exclusive benefit of the plan participants. If the plan sponsor notes that aspects of a plan are not benefiting plan participants, the plan sponsor has an active duty to make changes.

There is overwhelming evidence that participant education has failed. The logical response is to augment participant education with specific investment advice provided by qualified “fiduciary advisers,” persons or organizations that provides specific investment advice to plan participants.

The PPA provides the amendments and changes to ERISA that were necessary to encourage plan sponsors to retain qualified fiduciary advisers and to define safe harbor procedures to insulate plan sponsors from the liability associated with the advice.

The PPA also requires annual audits of “eligible investment advice arrangements”: when a fiduciary adviser is compensated to provide specific investment advice to participants. Such advice is defined as either (1) based on a computer-driven advice model or (2) fee neutral. While the details of the exact audit criteria are still being defined and tested, fi360 has produced a Self-Assessment of Fiduciary Excellence (SAFE) for the Annual Audit of the Arrangement Between a Plan Sponsor and a Fiduciary Adviser, that we feel properly fulfills the audit criteria as defined in the PPA.