[12669]
September 22, 2000
TO: PENSION COMMITTEE No. 69-00
AD HOC COMMITTEE ON INVESTMENT ADVICE
RE: DOL ACTING ASSISTANT SECRETARY KRAMERICH DELIVERS REMARKS ON
INVESTMENT ADVICE
Leslie B. Kramerich, Acting Assistant Secretary for the Pension and Welfare Benefits
Administration, U.S. Department of Labor, delivered remarks on the topic of investment advice
at a recent American Society of Pension Actuaries Conference. Noting the increasing
significance of participant-directed defined contribution plans as a major retirement savings
vehicle, she emphasized that many workers need tools, education, and specific advice with
respect to making investment decisions with their retirement savings.
Kramerich cautioned, however, that someone who undertakes the responsibility of
providing investment advice will most likely be an ERISA fiduciary and owe participants a
special duty of care and loyalty, including the duty not to deal with plan assets in its own
interest. In this regard, Kramerich stated that “[m]utual fund vendors providing advice about
their own funds where, for example, different funds have different fees could present a conflict
of interest if the vendor is a fiduciary.” Kramerich stressed the need to maintain safeguards to
deal with conflicts of interest, particularly because of the increasing complexity of the financial
markets and the consolidation occurring in the financial services industry.
Kramerich directed several points to employers on the topic of investment advice. They
are as follows:
• Many workers need investment assistance, given their responsibility for making
investment decisions in their 401(k) plans;
• Although investment education is an important tool, investment education may not be
enough for some workers; some workers may need professional investment advice;1
1 On this point, Kramerich noted that a plan may pay reasonable expenses attendant to the provision of investment
advice to plan participants.
2• Employers are not liable for the acts of an investment advisor designated to provide
advice to participants in an ERISA section 404(c) plan for a loss that is the “direct and
necessary result of a participant’s exercise of control” over his or her account; and
• As with the selection of service providers in general, an employer must prudently select
an investment advisor, and plan fiduciaries are expected to periodically monitor service
providers to determine whether the retention of the provider continues to be prudent.
Kramerich concluded her remarks by emphasizing that employers can be responsive to
their employees’ need for investment education and advice without significant burdens or
liability risks, and by encouraging the selection of providers that offer informed, unbiased and
appropriate investment education and investment advice.
Thomas T. Kim
Assistant Counsel
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