Should Employers Give Investment Advice?

With the recent market volatility, many employee’s are questioning their 401(k) statements and employers often find themselves in a quandary: They want to help their employees with their investments, but by offering investment advice, they open themselves to liability if the employee makes an investment that results in a financial loss.

The solution was provided by the Pension Protection Act of 2006. The PPA allows plan sponsors and fiduciaries to appoint qualified advisors to provide investment advice. As long as certain statutory requirements are met, sponsors are not liable for investment performance resulting from that advice.

The Department of Labor describes a plan sponsor's overarching role as follows: “The duty to act prudently is one of a fiduciary’s central responsibilities… It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions.” (http://www.dol.gov/). More importantly, having a trusted adviser handling retirement plan issues means an employer can focus on what really counts – running their business!