New pension legislation will significantly change US pension and IRA investments

Abstract

Purpose

To describe how the Pension Protection Act of 2006 (the “Pension Act”) will affect the investment of plan assets subject to the Employee Retirement Income Security Act of 1974 (ERISA).

Design/methodology/approach

Describes the redefinition of “plan assets” under the Pension Act and explains new statutory prohibited transaction exemptions in areas that include transactions between plans and service providers, cross‐trading, foreign exchange transactions, block trades, the use of electronic communications networks (ECNs), correction to reverse prohibited transactions, bonding, and investment advice.

Findings

The status of existing investors as benefit plan investors under the Pension Act should be reviewed to determine whether formerly precluded investors may now be permitted. ERISA‐related purchase, sale, and transfer restrictions currently in use will need to be reviewed and likely significantly revised to reflect the decreased breadth of “party in interest” prohibitions. Investment advisers will need to review whether they want to begin providing investment advisory services to plan participants and, if so, begin developing procedural safeguards to comply with the requirements of the Pension Act.

Originality/value

A useful summary of forthcoming pension legislation as it affects US pension and IRA investments, particularly in its redefinition of the circumstances under which an entity's assets are treated as “plan assets” for ERISA purposes and its new statutory exemptions from the prohibited transaction requirements of ERISA.

Citation

Gilbert, R.A., Lloyd Levin, I. and Downie, S. (2006), "New pension legislation will significantly change US pension and IRA investments", Journal of Investment Compliance, Vol. 7 No. 3, pp. 25-31. https://doi.org/10.1108/15285810610711446