HOW TO ANSWER THIS QUESTION

Q1C_1 — “Test 3 — INVESTMENT ADVICE FOR A FEE. Do you give investment advice or recommendations to the plan or its participants for compensation (direct or indirect)?”  This question targets ERISA Section 3(21)(A)(ii). Under the Employee Retirement Income Security Act (ERISA), this is the compensation-triggered fiduciary test. The moment money or other compensation (direct or indirect — including commissions, 12b-1 fees, sub-TA fees, revenue sharing, soft-dollar arrangements, or referral compensation) changes hands in exchange for individualized investment advice about the plan or its assets, fiduciary status attaches under §3(21)(A)(ii). The DOL’s Retirement Security Rule (2024) and PTE 2020-02 modernized this test to capture rollover recommendations and one-time advice that older interpretations sometimes missed.

Case Study: Compensated Advice vs. General Information

The Setup

Two professionals interact with the same 401(k) plan but in different capacities.

• Person A (Compensated Advisor): A Registered Investment Advisor contracts with the plan sponsor for $3,000/month plus 25 basis points of plan assets to recommend the fund menu, monitor performance, and meet quarterly with the investment committee. The advisor also gets paid trail commissions on any rollover that participants choose into the advisor’s own IRA products.
• Person B (Uncompensated HR Generalist): The company HR director provides participants with a one-page handout from the recordkeeper showing the available funds and their expense ratios. The handout includes a generic “asset allocation by age” chart published by the recordkeeper. The HR director receives no additional compensation for distributing this handout — it’s part of regular HR salary.

The ERISA Determination

• Person A will answer “Yes.” Direct compensation flows in exchange for individualized advice on plan investments. Fiduciary status under §3(21)(A)(ii) is unambiguous — and the rollover compensation triggers PTE 2020-02 acknowledgment obligations.
• Person B will answer “No.” Distributing generic educational material from a recordkeeper, without individualized recommendations or any additional compensation tied to the advice, does not meet the compensation-for-advice test. The HR director may still hold other fiduciary status (Q1A, Q1D), but not §3(21)(A)(ii).

Guidance to Answer the Question

To answer this question accurately, examine your compensation arrangements, contracts with the plan, and the substance of what you’re communicating to participants.

Choose “Yes” if:

• You’re Paid for Recommendations: You receive direct compensation (advisory fees, commissions, retainers) from the plan, plan sponsor, or participants in exchange for investment recommendations on plan assets.
• You Receive Indirect Compensation: Trail commissions, 12b-1 fees, sub-TA payments, revenue sharing, or any other indirect compensation flows to you because of recommendations you make affecting plan assets.
• You Provide Rollover Advice: You recommend rollovers from the plan into IRAs you manage or are affiliated with — and any compensation results from those rollovers. (PTE 2020-02 specifically extends fiduciary status to this scenario.)
• You Earn Soft-Dollar Benefits: Research, technology, or services are provided to you by fund companies based on plan assets you direct or recommend.

Choose “No” if:

• You Provide Pure Education: You distribute generic information that doesn’t constitute individualized advice (DOL Interpretive Bulletin 96-1 categories: plan information, general financial concepts, asset-allocation models, interactive investment materials).
• You’re Internal Staff Without Advice Compensation: You’re an HR director, payroll administrator, or other employee whose regular salary doesn’t increase based on the investment recommendations you do or don’t make.
• You’re a Pure Ministerial Vendor: You’re a TPA, recordkeeper, or custodian who executes instructions but doesn’t make investment recommendations — and your fees don’t vary based on what funds are selected.