April 14, 2015
DOL, EBSA Release Re-proposed Fiduciary Rule
As expected, the U.S. Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) released proposed regulations on April 14 defining the term “fiduciary”of an employee benefit plan under ERISA as a result of giving investment advice to a plan or its participants or beneficiaries. The proposal also applies to the definition of a “fiduciary” of a plan, including an individual retirement account. The Council is still reviewing the materials and will provide further analysis of the impact on plan operations in a future Benefits Byte and Benefits Briefing webinar.
Along with the rule itself, DOL and EBSA provided a series of proposed prohibited transaction exemptions:
- Proposed Best Interest Contract Exemption
- Proposed Class Exemption for Principal Transactions
- Proposed Amendment to PTE 75-1, Part V
- Proposed Amendments to and Proposed Partial Revocation of PTEs 86-128 and 75-1
- Proposed Amendments to Class Exemptions 75-1, 77-4, 80-83 and 83-1
- Proposed Amendment to and Proposed Partial Revocation of PTE 84-24
The proposed rule provides for a 75-day comment period after the rule has been published in the Federal Register, expected later this week (placing the comment deadline in late June or early July).
ERISA currently imposes stringent requirements on individuals who act as plan fiduciaries, supplemented by certain prohibited transactions. Fiduciaries are personally liable for losses sustained by a plan that result from a violation of these rules. The determination of who is a fiduciary therefore is of central importance. ERISA Section 3(21)(A) provides that a person is a fiduciary to the extent he or she exercises discretionary authority or control with respect to the management of its assets, renders investment advice for a fee or other compensation, direct or indirect, with respect to moneys or other property of a plan, or, has discretionary authority or responsibility in plan administration. Regulations have further refined the definition of who is treated as a fiduciary as a result of providing investment advice.
The proposed rule broadly updates the definition of fiduciary investment advice by extending fiduciary status in a wider array of advice relationships than existing rules and covers the following categories of advice: investment recommendations, investment management recommendations, appraisals of investments and recommendations of persons to provide advice for a fee or to manage plan assets. Persons who provide advice within these parameters would fall within the definition of fiduciary if they either represent they are acting as a fiduciary or provide advice pursuant to an agreement, arrangement or understanding that the advice is individualized or specifically directed to the recipient for consideration in making investment or investment management decisions regarding plan assets. The new proposal includes a number of significant carve-outs from the fiduciary rule including one for internal employees of a plan sponsor not receiving additional compensation for the advice they are providing beyond their normal compensation as employees of the plan sponsor.
The rule was first proposed by the EBSA in October 2010 (see the October 21, 2010, Benefits Byte) but was later withdrawn due to concerns raised by the business and financial communities, as well as lawmakers from both parties. The Council identified several key areas of concern for plan sponsors in February 3, 2011, written comments.
In announcing the submission of the proposed rule to the Office of Management and Budget (OMB) on February 23, President Obama emphasized the need to “modernize” the fiduciary rule. At that time, the White House also revealed a report from the Council of Economic Advisors (CEA), outlining the effects of conflicted investment advice on retirement savings. The Council recently released a Benefits Blueprint summary of the CEA report, raising a number of questions about the studies relied upon, and assumptions made by, the CEA in developing its report (see the March 30 Benefits Byte).
For more information on DOL’s fiduciary definition project, or to provide input for a Council comment letter, contact Lynn Dudley, senior vice president, global retirement and compensation policy, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.