Making the Most of 408g -Investment Theories

408(g) is an exemption that permits fiduciary advisers to IRA and ERISA plans to earn compensation without violating regulations that prohibit improper compensation, subject to an annual audit (and potential certification) assuring that applicable standards are met. 408(g) was written into Federal Laws by the Pension Protection Act of 2006 (“PPA”) and associated regulations issued by the Department of Labor (“DoL”) and Internal Revenue Service (”IRS”) in 2011.

This paper is one of a series intended to provide users and those considering use of 408(g) with guidance from the perspective of the independent auditor and independent expert required by the exemption.

This Paper

In creating the 408(g) exemption in 2006, Congress excluded methods of making investment recommendations that were untested or unproven. Congress required that recommendations be based on Generally Accepted Investment Theory (“GAIT”). The DoL then provided further guidelines in the 2011 regulation.

The 408(g) exemption recognizes that new investment methods would evolve over time and therefore avoided creating rules that were based on the current practices and instead created a regulatory structure that was broad and general and could be applicable to future methods.

This paper presents best practices for complying with audit and certification requirements for the variety of Generally Accepted Investment Theories.