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New DOL Fiduciary Rule Takes Effect: What does this Mean for Plan Sponsors?

June 19, 2017

The Department of Labor’s fiduciary rule took effect June 9th- it aims to mandate that all Plan sponsors act in the very best interests of their clients—read up on the pros and cons of this ruling.

The new Department of Labor fiduciary rule kicked in last week, meaning that 401k and 403b plan sponsors previously not recognized as fiduciaries will now be elevated to that level. All financial professionals who work with retirement plans or provide retirement planning advice will be bound legally and ethically to the fiduciary status. Though it will affect investment advisors more dramatically than retirement plan sponsors, it will alter plan sponsors’ relationships with record-keepers and advisors.

More about the ruling

Originally initiated under the Obama administration, the fiduciary rule is intended to prevent any potential conflict of interest, and to demand that financial advisors (including Plan Sponsors) always act in the best interests of their clients. President Trump halted implementation of the rule in February, feeling that it might not be a viable option for financial advisors.

The ruling expands the definition of fiduciary to include any professional who makes a recommendation or solicitation, not just someone who gives ongoing advice. In the past, only advisors who were charging a fee for their services on plans were defined as “fiduciaries.”

Concerns for Record-keepers

First things first...what exactly is a retirement plan record-keeper?

Record-keepers track assets in retirement plans—how much clients have, where it is, and what type of investment it is. These individuals are fairly passive players in retirement plans—they don’t give advice or track compliance.

But.....given the recent change there are some new concerns for record-keepers....

  • The revised definition of fiduciary under the DOL rules alters what was considered “education” before, meaning some things record-keepers express opinion on could now be considered advice....
    • A DOL FAQ notes that suggesting a “line-up” (a plan’s investment menu, so to speak) could make record-keepers fiduciaries, if they suggest investments beyond the outline of the plan’s investment policy statement.
    • Record-keepers have new concerns about their interactions with participants, for example, they may be providing some sort of fiduciary advice for participants who are separating from service and may be considering rolling their plan assets into an IRA.
  • Services and even pricing may change under the new rules.

Nevertheless, there are some positives to the ruling....

  • Some record-keepers, especially those with a retail brand that regularly market direct to investors, are eager to solicit IRA rollovers even if they must act as fiduciaries in the process, because doing so could potentially provide better results for participants, and the opportunity to provide more services at the same price.

More uncertainty lies ahead

The rule has “partially taken effect,” in that the two key provisions of the ruling have gone through—1) the definition of fiduciary and 2) impartial conduct standards (acting in client’s best interest). However, there are many other provisions in the ruling that have yet to take effect, and it is unclear if they will or not.

As developments arise with this ruling, we will keep you updated.

For further guidance, reach out to me or a member of our Employee Benefit Plan Audit Team.

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