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Wagner Law Group, A Professional Corporation, is a nationally
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September 2, 2016
ERISA Law Newsletter
WHAT THE DOL'S FINAL FIDUCIARY
RULE MEANS FOR PLAN COMMITTEES
by Marcia S. Wagner, Esq.
6, 2016, the U.S. Department of Labor ("DOL") released its
final rule on fiduciary investment advice and its related exemptions
("Fiduciary Rule") that greatly expands the list of
activities that make one a fiduciary and the entities that will be
treated as fiduciaries under ERISA. The Fiduciary Rule is a
significant regulatory initiative, and thus it is important to
understand how it impacts retirement plan committees' fiduciary
responsibilities and committee relationships with plan service
providers. This article will focus on some of the implications the
new Fiduciary Rule will have on retirement plan committee
Effect. At its narrowest scope,
the new Fiduciary Rule will have no effect on plans that already have
strong retirement plan committees comprised of qualified internal
representatives aided by independent fiduciaries. That is, the
Fiduciary Rule generally does not expand upon the activities that
will result in fiduciary status for retirement plan committees
members, since retirement plan committees members are currently ERISA
fiduciaries because of their responsibilities for the management of
the plan and its assets. The new Fiduciary Rule does not alter the
fiduciary duties that ERISA currently imposes on plan fiduciaries -
the duties of loyalty, prudence, diversification of plan assets,
acting for the exclusive benefit of plan participants and beneficiaries,
and administering plans in accordance with their terms.
Plan Committees and Service Providers. Where the new Fiduciary Rule will have an
effect on retirement plan committees will be in dealing with service
providers who in the past may not have regarded themselves as
fiduciaries. For example, in the past, a consultant who was making
recommendations that might be perceived as advice could avoid
fiduciary responsibility by saying he or she did not render advice
"on a regular basis," or that a recommendation was not
intended to serve as the "primary basis" for investment
decisions. The Fiduciary Rule takes a broader approach and
characterizes any investment-related communication that "would
reasonably be viewed as a suggestion [to] engage in or refrain from
taking a particular course of action" as fiduciary in nature
even if the communicator does not intend to give definitive advice
(whether on a primary basis, or otherwise). As these consultants will
no longer be able to take the position that they are not ERISA
fiduciaries, the change in status has a number of possible
implications for retirement plan committees.
because there is a concept under ERISA known as co-fiduciary
liability, retirement plan committees' potential fiduciary liability
under ERISA is increased. In part for that reason, although more so
for the uptick in fiduciary litigation in the past few years,
retirement plan committees members might wish to review and possibly
increase their fiduciary liability insurance. This fiduciary
liability insurance is entirely separate and apart from the ERISA
fidelity bond, which only deals with losses due to fraud or
the level of disclosure that a fiduciary makes to retirement plan
committees is different from the disclosure by a non-fiduciary. For
example, a fiduciary must furnish information with respect to its
direct and indirect compensation, as well as the conflicts of
interest of interest arising from its business model.
because of a perceived higher risk of liability as a fiduciary, the
fees charged by a service provider that is now being treated as a
fiduciary may be higher. That could be relevant from a retirement
plan committee's perspective, because it needs to sign off on the
compensation being paid to the service provider as reasonable.
Payment of unreasonable compensation to a service provider is a prohibited
transaction under both the Internal Revenue Code and ERISA.
to the extent that a service provider is acting as a fiduciary,
retirement plan committees will want to confirm the manner in which
the service provider is dealing with potential conflicts of interest.
Education and Distribution.
Another area in which the new rules will have an effect, although
operationally more upon human resources rather than retirement plan
committees, is with respect to investment education and distribution
options. The DOL recognized the importance of being able to provide
investment education and distribution information to plan
participants. It also recognized that the Fiduciary Rule could cause
those responsible for providing this information at the plan level to
be treated as fiduciaries. Therefore, the DOL created specific
conditions which allow for those responsible to not be subject to the
Fiduciary Rule. Communications in both of these areas will need to be
monitored by retirement plan committees to ensure that a line is not
inadvertently crossed converting a permissible non-fiduciary
communication into a fiduciary one.
Rollovers. The new Fiduciary
Rule also extends ERISA investment fiduciary coverage to IRAs.
Transactions involving rollovers can have fiduciary implications, and
as a result, there may be fewer rollovers from the various plans that
are maintained by the plan sponsor, that is, there will be more
terminated vested participants with account balances in these plans.
Although this will most likely not directly affect plans in 2016 or
2017, retirement plan committees will need start considering how to
address the implications this will have on plans in the near future.
Picture. Retirement plan
committees will need to make sure that they have a firm understanding
of the Fiduciary Rule and put the proper policies and procedures in
place to address the increased responsibilities they have in
monitoring the interactions of individual and entities that will be
deemed fiduciaries under the new Fiduciary Rule.