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.
The Congress deliberately provided protection for advisers through what is often referred to as a “Safe Harbor”. Through the 408(g) exemption advisers can act as fiduciaries without the enormous liability and loss of income that is usually associated with that role. The 408(g) exemption protects advisers from regulatory sanctions by the Federal government and its agencies, and defense against any action by States or SROs or litigation from the private sector.
This protection is intended to release the knowledge and experience of the adviser community to enhance the prospects of retirement for millions of workers who don’t have the skill to optimally manage their investments.
Securing this protection while retaining income requires the adviser to comply with certain regulations and submit to independent oversight.
This paper describes the risks and protections of 408(g) and compares these with alternatives for protection from fiduciary liability of providing investment advice for compensation.